LUK WING YAN v. CMB WING LUNG BANK LTD (PREVIOUSLY KNOWN AS WING LUNG BANK LTD)

HCA 1249/2016

[2021] HKCFI 279

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1249 OF 2016

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J U D G M E N T

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A. Introduction

1.  It is often said that if something seems too good to be true, it probably is.  In this case, it definitely was.

2.  For a period of over three years starting in September 2010, the plaintiff engaged in what she thought were investments offered by the defendant (“Bank”) and introduced to her by one of the Bank’s employees, Ms Liu King Yee (“Ms Liu”), the manager in charge of securities at the North Point Branch of the Bank.  The investments were explained as being “internal”, in the sense that they were investments made available by the Bank to its staff/employees, but which were not otherwise available to non-staff/employees.  The investments apparently promised extremely high returns – frequently at 100% return over only a few months, and even some at an annualised rate in excess of 500%.  The plaintiff says she put in around $35 million.  Though the plaintiff received various payments totalling around $11.3 million, the rest (around $23.8 million) has never been returned and has been completely lost.  The monies invested by the plaintiff were all transferred to or via Ms Liu, by the plaintiff paying or transferring the funds into Ms Liu’s own personal bank account also held with the Bank.  The monies paid/returned to the plaintiff were, with one exception, also received via Ms Liu.

3.  There is no doubt that the plaintiff was the victim of a fraud perpetrated by Ms Liu.  The fraud was brought to light in March 2014.  The plaintiff was not the only victim of Ms Liu’s fraud, but she was by far the biggest loser of funds.  In October 2015, Ms Liu pleaded guilty to, and was convicted of, three counts of fraud. She was sentenced to 10 years and 4 months’ imprisonment, reduced on appeal to 9 years and 4 months, which imprisonment she is now serving.

4.  The issue in these proceedings is whether the Bank can be held liable – that is, held legally responsible – for the losses sustained by the plaintiff as a result of the fraud perpetrated by the Bank’s employee Ms Liu.

5.  Ms Cindy Kong, Counsel for the plaintiff, says that for various reasons the Bank should be held liable.  Ms Kong seeks to rely on (a) vicarious liability for the fraud of Ms Liu, (b) negligence in handling transfer of funds from the plaintiff’s account with the Bank to Ms Liu’s account with the Bank, (c) breach of contract under the terms of the account opening mandate and/or implied contractual terms, and (d) breach of fiduciary duty as an agent, in handling the plaintiff’s payments and in offering investment advice to the plaintiff through Ms Liu.

6.  Mr Laurence Li SC, leading Mr Keith Chan, Counsel for the Bank, says that none of the bases of claim should lead to any finding of liability on the part of the Bank.  Mr Li says that the various and numerous heads of claim put forward overly complicate the case, when the real issue can be boiled down to the question whether Ms Liu was acting with the apparent authority from the Bank when she defrauded the plaintiff.  Mr Li says the answer to that question is obviously ‘no’.

7.  It is, of course, correct that Ms Kong has sought to identify a number of differing potential routes to establishing liability against the Bank.  On one view, as Mr Li suggests, that might be regarded as a recognition of the legal difficulties facing the plaintiff’s claim.  But, on another view, it might be regarded as reflecting a question which many people might feel properly arises: how can the Bank not be somehow liable for having failed to notice and make any enquiries at all about the tens of millions of dollars coming from one customer and flowing through an account held at the Bank by one of the Bank’s own employees?

8.  At the trial, evidence was given by the plaintiff herself as her only witness.  The Bank called as its two witnesses Mr Wong Kin Wing (“Mr Wong”), the North Point Branch manager of the Bank from November 2013 until the discovery of the fraud in March 2014, and Ms Yip Shun Oi (“Ms Yip”), the Branch Operations Management Head.  Amongst other things, the three witnesses spoke to the various documentary evidence in the trial bundle.

9.  However, the trial bundle was smaller than the bundle of photocopied authorities, so I have also had the benefit of written and oral, opening and closing, submissions from Ms Kong and Mr Li on matters of law as well as on questions of fact.

B.     The Facts

10.  It is convenient to deal with most of the factual matters first (where all references to dollar sums are denominated in Hong Kong dollars).

11.  Many of the primary facts are not substantially in dispute, though there is dispute about the inferences to be drawn from them.  Insofar as I set out the facts below, I do so both by reference to those uncontroversial facts, and to my findings on areas of controversy.  In making my findings, I have approached the evidence in the usual way, by considering the oral and documentary evidence as a whole, by testing evidence against other evidence (in particular contemporaneous documents), and by reference to what seem to me to be the inherent likelihoods and probabilities.  Insofar as allegations are made which amount to serious criticisms as to dishonesty or bad faith or the like, I have borne in mind that the more serious the allegation the more compelling the evidence should be before the allegation is accepted.

12.  As already indicated, the plaintiff gave evidence in support of her own case, and Mr Wong and Ms Yip gave evidence for the Bank.

13.  Mr Wong had previously worked for the Bank from November 1995 to November 2000, but then worked for various other financial and banking institutions, before returning to the Bank in November 2013.  He re-joined the Bank as the North Point Branch Manager. Mr Wong’s primary responsibility in that role was for the overall operation of the branch, including facilitating its operation and client transactions, monitoring the work of branch employees and transactions passing through the branch, complying with directions and policies issued by the Bank’s management.  As will be seen from the factual chronology, Mr Wong was not in his post, or even working for the Bank, for most of the material time of events giving rise to these proceedings.  His contemporaneous involvement was really only in relation to matters arising after discovery of the fraud.

14.  Ms Yip also only joined the retail banking department of the Bank as Branch Operations Management Head in or around January 2014. As a result, her contemporaneous involvement was also only in relation to matters arising after discovery of the fraud.

15.  The plaintiff was born in 1981 and completed secondary education (though the bank account opening materials suggest tertiary education).  Since leaving education she has worked in the food and beverage business, including owning and running her own restaurant and food delivery businesses.  She has also invested in properties and taxis.  By 2010, on her own evidence, the plaintiff was not an economics or investment ingénue.

16.  In around 2007, through the introduction of friends, the plaintiff came to know a “feng shui” master called Liu Chi (or Tsz) Lung (“Mr Liu”).  Mr Liu began reading the plaintiff’s future, and she came to trust his advice.  From her contact with him, the plaintiff also learned that Mr Liu had two sisters, one of whom worked in a bank.

17.  In around 2009, when Mr Liu learned that the plaintiff invested in properties, he told the plaintiff that there was an investment product with the bank where his sister worked (ie. the Bank); all that was required was to invest a sum of money and it would generate a high monthly yield.  Gradually, as the plaintiff learned that many of Mr Liu’s friends participated in the investment, she began to pay attention and believed she could make money herself.

18.  On around 18 March 2010, the plaintiff went with Mr Liu to the Bank’s North Point Branch to be introduced to and to meet his younger sister, Ms Liu.  Ms Liu wore the Bank’s uniform.  At the time, the Branch had a separate securities counter, where Ms Liu sat because she was (or within a few months became) the securities manager at that Branch.

19.  There is a dispute as to whether the plaintiff and Ms Liu were friends before March 2010.  In this regard, I prefer and accept the plaintiff’s evidence that she was not already a friend of Ms Liu, and met her for the first time when introduced by Mr Liu at the Bank.  I also accept that whilst the plaintiff and Ms Liu always dealt with each other in a friendly manner, and that the level of friendliness might have increased, they did not become true friends.  Though they may have met outside the Bank on a few occasions, the plaintiff said in evidence that she always regarded Ms Liu as a bank employee or manager, not a friend, that the plaintiff was Ms Liu’s client and that Ms Liu would not particularly talk about herself.  I accept that evidence.  On the other hand, it seems clear that the plaintiff would not have met or been introduced to Ms Liu but for her friendship with Ms Liu’s brother, Mr Liu.  This is what seems to me to provide context for what was later said in a conversation in March 2014, of which there is a transcript (see below).

20.  Ms Liu had a Bank employee staff/teller member (5579), and a number (AA3301) identifying that she was registered and licensed to sell securities products.  Ms Liu also had accounts held with the Bank, including a savings account number 606-202-3646-1 (“3646 Account”). The number of the 3646 Account did not, of itself, identify Ms Liu as an employee of the Bank.

21.  During the plaintiff’s visit to the Branch on 18 March 2010, Ms Liu helped the plaintiff to open two accounts.  One was a Hong Kong dollar passbook savings account number 605-203-0410-2 (“Savings Account”), opened with a deposit of $1,000.  The other was a securities account number 605-3-11596-7 (“Securities Account”).  The “605” in each account number identified that the accounts had been opened at the North Point Branch.  The plaintiff also applied for a Net Banking arrangement for both accounts, and was allocated a first log-on password and a security token.  No investment suggestions were made by Ms Liu to the plaintiff on that day, and the accounts were set up simply to permit future activity.

22.  On the Securities Account Mandate, the plaintiff acknowledged and confirmed that she had been provided with and had had highlighted to her the risk disclosure statements set out in Part 7 (Risk Disclosure Statements) of the Terms and Conditions of the Agreement, and that she had been invited to read the risk disclosure statements, to ask questions and take independent professional advice if she so wished.  The Mandate also contained Ms Liu’s declaration that she had provided those materials and invitation to the plaintiff.

23.  In filling out the Securities Account opening information, the plaintiff provided information as to her financial situation and investment experience.  She gave her monthly income as between $10,000 and $29,999.  She said she held assets in the form of ‘deposits’, ‘property’ and ‘others (taxi)’, but without identifying the value of those assets.  She said she had investments in ‘local shares’ and ‘foreign currencies’, again without specification of their value, with investment experience of 5 and 3 years respectively. She said her investment objective was ‘short term’ and her risk bearing level was ‘medium’.

24.  I can return later to what are said to be the material terms and conditions of the Savings Account and the Securities Account, varying (as they did) slightly over the material time.  The Bank also operates wealth management accounts.  However, the plaintiff did not open – and she was not asked to open – such an account.

25.  In the months after March 2010, Ms Liu spoke to the plaintiff from time to time to talk about the specific investment product previously mentioned by Mr Liu.  The discussions took place at the Branch, where Ms Liu wore the Bank’s uniform, or by telephone. Ms Liu said the investments were called ‘equity linked notes’ (“ELNs”). This meant that the investments were plans linked to the trading price of a stock, and the return on investment would depend on whether the stock price would be trading above or below a pre-set target price (“Target Price”) during a certain period of investment (“Investment Period”).  The relevant terms of the ELNs might vary, including as to the stock, the Target Price and the yield.  Ms Liu told the plaintiff that the Bank offered such investment plans at irregular intervals, and that there was a quota limit for each offer.

26.  Though the plaintiff’s witness statement filed for these proceedings does not make it very clear – for which she has been criticised by Mr Li, as having ‘played down’ this aspect because she recognises it as unhelpful – I accept that the plaintiff has in broad terms always made clear to anyone who asked that she understood the ELNs to be an “internal” product, available to the Bank’s staff/employees (and not other people).  Indeed, the “internal” aspect of the investment is important to the plaintiff’s case, because she says it is part of the reason why she genuinely believed the investments to be real, and it is also some explanation for why the investments were not shown on statements sent by the Bank in relation to the Securities Account without arousing her suspicion.

27.  In early September 2010, Ms Liu telephoned the plaintiff to inform her that there was an upcoming plan offering a 10% monthly return.  The plaintiff agreed to invest $300,000 into the plan (“1^st Investment”).  Ms Liu told the plaintiff that it was necessary for Ms Liu first to ‘occupy’ or take up the quota in the Bank using Ms Liu’s money first, and that the plaintiff could reimburse her afterwards.

28.  On 13 September 2010, the plaintiff deposited a cheque of $220,000 into her Savings account.  On 14 September 2010, she deposited a further $80,000 in cash.  On the same day, the plaintiff transferred the total $300,000 to Ms Liu’s 3646 Account with the Bank.  (I will return later to what appears to have happened to those funds after receipt by Ms Liu in the 3646 Account.)

29.  The relevant investment was an ELN for the stock of Agricultural Bank of China, stock code 1288 (“1288”).  (In fact, all subsequent investments were supposedly linked to the same stock.)  Though the plaintiff can no longer find the documents she says she was given relating to the 1^st Investment, the plaintiff says that the Target Price was $3.2.  In her witness statement filed for this action, the plaintiff said the 1^st Investment was offering 10% monthly return, which would mean a return of $30,000 per month.  The plaintiff also said that if 1288 “had traded above $3.2 throughout a particular investment period”, she would receive interest of $30,000 for that particular period.  If, on the contrary, 1288 “traded below $3.2 during the Investment Period”, she would only receive interest of $7,500 for that particular period.

30.  In her oral evidence, the plaintiff seemed to change that description.  Orally, she said the relevant trading date to consider the price of the stock – so as to assess whether it was above or below the Target Price – was only the last day of the investment period.  In the context of the real issues in dispute in the case, this difference in evidence may not matter, save to show some uncertainty on the part of the plaintiff as to the nature of the investment product she thought she was engaging in and how it would actually work.  If necessary, I would tend to the finding that it is the last day of the relevant stated period (sometimes described as the maturity date) which is the date to assess the stock price so as to compare it with the relevant Target Price.  But as the investments were not real, I do not think it is necessary to decide it.

31.  It can also be noted that this suggested form of investment had an extremely attractive ‘upside’ and no apparent ‘downside’. The investment simply required placing/depositing funds with a bank, and no actual share purchase was required or would ever be required.  The return was either at a higher or lower rate, which would vary depending on the market price of the linked stock as compared against the Target Price.  The higher rate would return 10% after each 30-day period.  But even the lower rate would provide what many would regard as a handsome return of 2.5% after each 30-day period.

32.  I think I can take judicial notice of the fact that, at the time and all times material to this case, the banks were paying interest on Hong Kong dollar deposits at a rate, including the interbank rate, well below 1% per annum, that is giving a return of below 0.1% over a 30-day period.  Therefore, the plaintiff was apparently being offered a return of around 100 times the amount banks were otherwise paying on deposits.

33.  After the transfer of the investment funds by the plaintiff to Ms Liu, Ms Liu gave to the plaintiff some pages of purported receipts issued by the Bank.  This became a pattern in relation to subsequent investments.  On each occasion after a deposit had been made by the plaintiff into the 3646 Account, Ms Liu gave the plaintiff the following documents:

 (1)  A one-page sheet (“Receipt”) bearing the letterhead of the Defendant with its address, registered SFO institution number, address and contact details (in Chinese and English).  Printed on the page (in Chinese) was the title “股票掛鈎(高息認購)票據”, which has been translated as “Equity Linked (High Yield Subscription) Note”, or occasionally simply the English title “Equity Link Confirmation”.  Beneath the title were a series of entries (in Chinese) relating to date, customer name, identity card number, banking account number, settlement account number, linked stock, linked amount, interest rate, trigger point, linked duration, maturity date, settlement date and signature of customer.  Each Receipt was also stamped with a chop of the North Point (or Happy Valley) Branch of the Bank.  The stamp was initialled, apparently by Ms Liu.  Sometimes, but not always, beneath the stamp was handwritten the name of Ms Liu, her staff/teller number 5579 and license number AA3301.

 (2)  A one-page sheet entitled (in English only) “WING LUNG BANK LTD Online Data Maintenance/Adjustment Record (“Online Record”).  Each Online Record had some handwriting to identify the number and name of an account from which funds were apparently moving and the amount and destination of those funds.  The Online Record also bore the chop of the Branch (or the Happy Valley Branch) and the initials of Ms Liu.  There was also an apparently printed section providing for the ‘A/C NO’, “A/C NAME’, ‘TRANS [$ amount] TO’, ‘ELN NO’, ‘ELN NAME’, and ‘REMARKS’ (the latter being always “ELN TRADING (1288)”).

34.  In cross-examination, the plaintiff agreed that she had no way to check, and did not check, the genuineness of the Receipt or the Online Records.  I will return later to the various detailed comments which can be made about the Receipts.  It suffices for the moment to point out that they often contained typographical errors, and clearly did not even record all the terms of the investment contracts which the plaintiff says were explained to her by Ms Liu at the time.  As to the Online Records, they look like internal documents, and were given to the plaintiff with that explanation.

35.  But it is important that both the Receipts and the Online Records – though ultimately false documents – were obviously provided by Ms Liu to the plaintiff to lead the plaintiff to believe that she was at least investing in products offered by the Bank.  In fact, as the Receipts show, there was a space for the plaintiff to sign as the customer. The plaintiff said she was given two copies of each Receipt by Ms Liu, and signed one; she returned the signed copy to Ms Liu and kept the unsigned copy for herself (which is why those disclosed by her have no signature in the space for it).  To my mind, there would be no need to have provided these forged Bank documents to the plaintiff – and to have gone through the charade of asking her to sign one copy of the Receipts for return – had the plaintiff not been intended to believe that in her dealings with Ms Liu it involved at least a genuine bank product.  There was some force in the plaintiff’s oral evidence when she asked rhetorically why, if she had not relied on the documents, she would have put in tens of millions of dollars.

36.  In relation to the 1^st Investment, the following purported interest repayments were made to the plaintiff by transfer deposits into the Savings Account:

Date of purported Interest received	Amount ($)	Time
2010-10-27	30,000	43 days
2010-12-10	30,000	44 days
2011-01-28	30,000	49 days
2011-03-18	30,000	49 days
2011-05-09	30,000	52 days
2011-06-24	30,000	46 days
2011-08-11	30,000	48 days
2011-09-28	7,500	48 days
2011-11-21	7,500	54 days
2012-01-20	30,000	60 days
2012-03-23	34,000	63 days
2012-05-22	33,000	60 days
2012-06-20	15,000	29 days
2012-08-20	30,000	61 days
2012-09-24	15,000	35 days
2012-12-14(1)	30,000	81 days
2012-12-14(2)	30,000	N/A
2013-03-15	60,000	91 days
Total	502,000

37.  The third column of the table was added by Mr Li forensically (Exhibit D-1) to seek to identify the periods of time between payments, by reference to the date of the commencement of the period. So, for example, for the investment with an initial date of 14 September 2010, and payment of $30,000 made on 27 October 2010, Mr Li suggests that the payment was made after 43 days, which is not in accordance with a 30-day period.  So, Mr Li suggested to the plaintiff that from the very first purported interest payment, payment was late and it became later and later.

38.  This led to some rather confused evidence, but broadly the plaintiff said that payments began on a timely basis but later became delayed.  Indeed, it may be that (unintentionally, of course) the periods identified by Mr Li were not fair, as he counted calendar days rather than trading days.  Certainly, for some of the later investments, it was clearly transaction or trading days which were to be counted.  On that basis, for example, for a first period of 30 trading days commencing either on 13 or 14 September 2010, that period would have ended on 25 or 26 October 2010. Payment or settlement on 27 October 2020 was unlikely to have been late. There is an obvious knock-on effect as regards subsequent counting in Mr Li’s list.

39.  It might be added that the very confusion as to how to count days only points up the general incredulity of the purported investments.  However, it is also correct – and the plaintiff acknowledged – that, in relation to the investments generally, delays in repayments/interest payments did start to occur.

40.  It is a fact, now undisputed, that the purported interest return payments came from Ms Liu, rather than from the Bank. They were transferred from the 3646 Account into the Savings Account.  On each occasion a payment was made, Ms Liu informed the plaintiff that a payment had been made, and the plaintiff would check by going to the Bank to update her passbook.  The passbook showed the transfer or deposit in the “TRX Code” column, but not the transferor or depositor.  But, the relevant code used never identified, for example, payment by the Bank of interest.  Almost always, the money received would be immediately withdrawn by the plaintiff from the Savings Account.

41.  In any event, the plaintiff says that, though she received a total of $502,000 as purported interest return payments on the 1^st Investment, she has not recovered the initial capital sum of $300,000.

42.  A similar pattern arose for further investments.  On each occasion, Ms Liu telephoned the plaintiff about a potential investment or the rollover of a previous investment.  Rollover investments were sometimes made by rolling over the entire amount, sometimes by adding an amount and sometimes by reducing the amount.  On each occasion, Ms Liu imparted a sense of urgency in the need to decide, so as to be able to secure part of the available allocation, and that Ms Liu would pay first and the plaintiff would reimburse afterwards (mostly on the same day). On each occasion that funds were provided by the plaintiff, they were paid into or transferred into Ms Liu’s 3646 Account.

43.  The various investments have been collated and described by the plaintiff in her witness statement as follows (with small changes made by me to delete apparent duplication):

1^st Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$300,000
Target Price	$3.2
Interest payment per period if 1288 would trade above the Target Price	$30,000
Interest payment per period if 1288 would trade below the Target Price	$7,500

2^nd Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$300,000
Target Price	$3.2
Interest payment per period if 1288 would trade above the Target Price	$35,500
Interest payment per period if 1288 would trade below the Target Price	$8,875

3^rd Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$200,000
Target Price	$3.5
Interest payment per period if 1288 would trade above the Target Price	$25,000
Interest payment per period if 1288 would trade below the Target Price	$6,375

4^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$700,000
Target Price	$3.5
Interest payment per period if 1288 would trade above the Target Price before 16 July 2012	100% per annum
Interest payment per period if 1288 would trade below the Target Price before 16 July 2012	55% per annum

4^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,155,000
Target Price	$1
Interest payment per period if 1288 would trade above the Target Price	100%
Interest payment per period if 1288 would trade below the Target Price	75%

4^th Investment – 2^nd rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$2,310,000
Target Price	$2.6
Interest rate if stock price go above the Target Price	100%
Interest rate if stock price go below the Target Price	75%
Maturity Date	2013-10-02 (90 trading days)
Trading Date	2013-10-04

4^th Investment – 3^rd rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$4,620,000
Target Price	$2.6
Interest rate if stock price go above the Target Price	100%
Interest rate if stock price go below the Target Price	75%
Maturity Date	2014-01-20 (70 trading days)
Trading Date	2014-01-22

5^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$300,000
Target Price	$4
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	65%
Maturity Date	2012-05-11 (150 trading days)
Clearing Date	2012-05-15

5^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$600,000
Target Price	$4
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	65%
Maturity Date	[Not available]
Clearing Date	[Not available]

5^th Investment – 2^nd rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$2,900,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-10-18 (85 trading days)
Clearing Date	2013-10-22

5^th Investment – 3^rd rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$4,300,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2014-02-28 (85 trading days)
Clearing Date	2014-03-04

6^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$855,000
Target Price	$1
Interest rate if 1288 would trade above the Target Price	95%
Interest rate if 1288 would trade below the Target Price	90%
Maturity Date	2013-02-20
Clearing Date	2013-02-22

6^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$2,500,000
Target Price	$3.5
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-07-10 (80 trading days)
Clearing Date	2013-07-12

6^th Investment – 2^nd rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$4,475,000
Target Price	$2.4
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-11-12 (85 trading days)
Clearing Date	2013-11-14

6^th Investment – 3^rd rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$6,170,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100% (1st Phase) 50% (2nd Phase)
Interest rate if 1288 would trade below the Target Price	75% (1st Phase) 37.5% (2nd Phase)
Maturity Date (1st Phrase)	2014-01-24 (45 days)
Maturity Date (2nd Phrase)	2014-01-28
Clearing Date (1st Phrase)	2014-04-04
Clearing Date (2nd Phrase)	2014-04-06

7^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$600,000
Target Price	$1
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	90%
Maturity Date	2013-08-12
Clearing Date	2013-08-14

7^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,200,000
Target Price	$2.45
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-12-13 (85 days)
Clearing Date	2013-12-17

8^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$700,000
Target Price	$2.9
Interest rate if 1288 would trade above the Target Price	$46,000
Interest rate if 1288 would trade below the Target Price	$23,000
Maturity Date	2012-12-27 (30 days per period, for 6 period in total)

9^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$200,000
Target Price	$2.9
Interest rate if 1288 would trade above the Target Price	$29,000
Interest rate if 1288 would trade below the Target Price	$13,000
Maturity Date	2013-02-24 (30 days per period, for 6 period in total)

10^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$700,000
Target Price	$1.5
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-05-27 (200 days)
Clearing Date	2013-05-29

10^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,400,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-10-07 (90 days)
Clearing Date	2013-10-09

10^th Investment – 2^nd rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$2,300,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2014-02-10 (80 days)
Clearing Date	2014-02-12

11^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$300,000
Target Price	$1.5
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-06-01 (200 days)
Clearing Date	2013-06-03

11^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$821,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-10-17 (85 days)
Clearing Date	2013-10-21

11^th Investment – 2^nd rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,642,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2014-02-20 (80 days)
Clearing Date	2014-02-24

12^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,300,000
Target Price	$3
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-05-29 (75 days)
Clearing Date	2013-05-31

12^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$2,600,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-10-08 (90 days)
Clearing Date	2013-10-10

12^th Investment – 2^nd rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$5,200,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2014-02-05 (75 days)
Clearing Date	2014-02-07

13^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$2,700,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-09-19 (90 days)
Clearing Date	2013-09-23

13^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$4,260,000
Target Price	$2.8
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2014-01-20 (75 days)
Clearing Date	2014-01-22

14^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$200,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-10-04 (90 days)
Clearing Date	2013-10-08

14^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$400,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-12-11 (50 days)
Clearing Date	2013-12-13

15^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,500,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-10-07 (85 days)
Clearing Date	2013-10-09

15^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,500,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-02-10 (80 days)
Clearing Date	2013-02-12

16^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,000,000
Target Price	$2.5
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-10-29 (90 days)
Clearing Date	2013-10-31

16^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,000,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date (1st Phrase)	2014-01-17 (50 days)
Maturity Date (2nd Phrase)	2014-01-21
Clearing Date (1st Phrase)	2014-04-04
Clearing Date (2nd Phrase)	2014-04-08

17^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,887,000
Target Price	$2.45
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-10-31
Clearing Date	2013-11-04

17^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$3,774,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date (1st Phrase)	2014-01-14 (45 days)
Maturity Date (2nd Phrase)	2014-01-16
Clearing Date (1st Phrase)	2014-04-01
Clearing Date (2nd Phrase)	2014-04-03

18^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$500,000
Target Price	$2.4
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-11-12
Clearing Date	2013-11-14

18^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$800,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date (1st Phrase)	2014-01-24 (45 days)
Maturity Date (2nd Phrase)	2014-01-28
Clearing Date (1st Phrase)	2014-04-04
Clearing Date (2nd Phrase)	2014-04-06

19^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,640,000
Target Price	$2.45
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-11-20 (90 days)
Clearing Date	2013-11-22

19^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$3,014,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date (1st Phrase)	2014-02-07 (45 days)
Maturity Date (2nd Phrase)	2014-02-11
Clearing Date (1st Phrase)	2014-04-15
Clearing Date (2nd Phrase)	2014-04-17

20^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,000,000
Target Price	$2.45
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-11-29
Clearing Date	2013-12-03

20^th Investment – 1^st rollover

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,600,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date (1st Phrase)	2014-02-14 (45 days)
Maturity Date (2nd Phrase)	2014-02-18
Clearing Date (1st Phrase)	2014-04-22
Clearing Date (2nd Phrase)	2014-04-24

21^st Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,000,000
Target Price	$2.45
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-12-05
Clearing Date	2013-12-09

22^nd Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,500,000
Target Price	$2.45
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2013-12-09
Clearing Date	2013-12-11

23^rd Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$400,000
Target Price	$2.65
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date	2014-01-21 (70 days)
Clearing Date	2014-01-23

24^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,775,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date (1st Phrase)	2013-12-30 (55 days)
Maturity Date (2nd Phrase)	2014-01-03
Clearing Date (1st Phrase)	2014-03-19
Clearing Date (2nd Phrase)	2014-03-21

25^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$950,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date (1st Phrase)	2014-01-14 (50 days)
Maturity Date (2nd Phrase)	2014-01-16
Clearing Date (1st Phrase)	2014-04-01
Clearing Date (2nd Phrase)	2014-04-03

26^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$5,200,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date (1st Phrase)	2014-01-13 (45 days)
Maturity Date (2nd Phrase)	2014-01-15
Clearing Date (1st Phrase)	2014-03-24
Clearing Date (2nd Phrase)	2014-03-26

27^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$1,500,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date (1st Phrase)	2014-01-16 (45 days)
Maturity Date (2nd Phrase)	2014-01-20
Clearing Date (1st Phrase)	2014-03-27
Clearing Date (2nd Phrase)	2014-03-31

28^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$5,000,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date (1st Phrase)	2014-01-22 (45 days)
Maturity Date (2nd Phrase)	2014-01-24
Clearing Date (1st Phrase)	2014-04-02
Clearing Date (2nd Phrase)	2014-04-04

29^th Investment

Nature of Investment	Equity-linked notes of 1288
Initial Capital Investment	$500,000
Target Price	$2.6
Interest rate if 1288 would trade above the Target Price	100%
Interest rate if 1288 would trade below the Target Price	75%
Maturity Date (1st Phrase)	2014-01-24 (45 days)
Maturity Date (2nd Phrase)	2014-01-28
Clearing Date (1st Phrase)	2014-04-04
Clearing Date (2nd Phrase)	2014-04-08

44.  In broad terms, the sums committed to investments became larger and larger, against the promise of increasingly high returns.  The promised interest or rate of return was for the period of the investment, or was on occasions described as an annual (p.a.) rate – though, as will be seen below, what was sometimes described as an annual rate was said to have accrued only over the period of investment.  The following table shows the apparent promised interest or return rates on each of the investments, translated into annualised rates (assuming return over the period of investment and that all investment periods are counted by reference to trading days, not calendar days, and assuming each year has 250 trading days, with figures rounded to the nearest whole number):

Investment	Approximate Annualized Return higher % p.a. / lower % p.a.
1st Investment	83% / 21%
2nd Investment	99% / 25%
3rd Investment	104% / 27%
4th Investment	100% / 55%
4th Investment – 1st rollover	100% / 75%
4th Investment – 2nd rollover	277% / 208%
4th Investment – 3rd rollover	357% / 268%
5th Investment	166% / 108%
5th Investment – 1st rollover	100% / 65%
5th Investment – 2nd rollover	294% / 221%
5th Investment – 3rd rollover	294% / 221%
6th Investment	297% / 281%
6th Investment – 1st rollover	313% / 234%
6th Investment – 2nd rollover	294% / 221%
6th Investment – 3rd rollover (Phase 1) (Phase 2)	556% / 417% 278% / 208%
7th Investment	[66% / 59%]
7th Investment – 1st rollover	294% / 221%
8th Investment	55% / 27%
9th Investment	121% / 54%
10th Investment	125% / 94%
10th Investment – 1st rollover	278% / 208%
10th Investment – 2nd rollover	313% / 234%
11th Investment	125% / 94%
11th Investment – 1st rollover	294% / 221%
11th Investment – 2nd rollover	313% / 234%
12th Investment	333% / 250%
12th Investment – 1st rollover	278% / 208%
12th Investment – 2nd rollover	333% / 250%
13th Investment	278% / 208%
13th Investment – 1st rollover	333% / 250%
14th Investment	278% / 208%
14th Investment – 1st rollover	500% / 375%
15th Investment	294% / 221%
15th Investment – 1st rollover	313% / 234%
16th Investment	278% / 208%
16th Investment – 1st rollover	500% / 375%
17th Investment	278% / 208%
17th Investment – 1st rollover	556% / 417%
18th Investment	278% / 208%
18th Investment – 1st rollover	556% / 417%
19th Investment	278% / 208%
19th Investment – 1st rollover	556% / 417%
20th Investment	278% / 208%
20th Investment – 1st rollover	556% / 417%
21st Investment	313% / 234%
22nd Investment	313% / 234%
23rd Investment	357% / 268%
24th Investment	455% / 341%
25th Investment	500% / 375%
26th Investment	556% / 417%
27th Investment	556% / 417%
28th Investment	556% / 417%
29th Investment	556% / 417%

45.  Other than risk to capital, which one would not likely expect from in effect simply placing a deposit with a reputable bank, the worst ‘downside’ to any of the investments was apparently a 21% per annum return.  The best ‘downside’ – if it could ever be described as such – was in excess of 400% per annum return.  The best ‘upside’ was in excess of 550% per annum return (and if the calculation is by reference to calendar not trading days, the best return promised was over 800%).  Even if the promised return is not annualised, the rates of return were extremely high, even on the supposed ‘downside’.

46.  It is also pertinent to note the comparison between the Target Price and the market price of 1288 as at the date of each investment.  I set that out in the table below, drawn from public sources.  But, looking at the table, it is no surprise that the plaintiff said in oral evidence that ordinarily she expected to receive the higher of the two possible rates of return on the investments (that is, on the basis that the market price at the end of any relevant investment period would be above the Target Price set for that investment):

Investment	Date	Target price ($)	Market Price ($)
1st Investment	13/9/2010	3.2	3.8
2nd Investment	29/4/2011	3.2	4.69
3rd Investment	12/5/2011	3.5	4.55
4th Investment	25/7/2011	3.5	4.04
4th Investment – 1st rollover	24/7/2012	1	2.99
4th Investment – 2nd rollover	23/5/2013	2.6	3.75
4th Investment – 3rd rollover	4/10/2013	2.6	3.59
5th Investment	8/10/2011	4	2.63
5th Investment – 1st rollover	15/5/2012	4	3.3
5th Investment – 2nd rollover	17/6/2013	2.6	3.41
5th Investment – 3rd rollover	22/10/2013	2.6	3.68
6th Investment	7/11/2011	1	3.62
6th Investment – 1st rollover	15/5/2012	3.5	3.3
6th Investment – 2nd rollover	12/7/2013	2.4	3.2
6th Investment – 3rd rollover	14/11/2013	2.6	3.64
7th Investment	28/2/2012	1	3.71
7th Investment – 1st rollover	14/8/2013	2.45	3.41
8th Investment	20/3/2012	2.9	3.6
9th Investment	9/5/2012	2.9	3.42
10th Investment	13/11/2012	1.5	3.35
10th Investment – 1st rollover	29/5/2013	2.6	3.68
10th Investment – 2nd rollover	9/10/2013	2.6	3.59
11th Investment	19/11/2012	1.5	3.32
11th Investment – 1st rollover	14/6/2013	2.6	3.38
11th Investment – 2nd rollover	21/10/2013	2.6	3.67
12th Investment	4/2/2013	3	4.36
12th Investment – 1st rollover	31/5/2013	2.6	3.65
12th Investment – 2nd rollover	10/10/2013	2.6	3.66
13th Investment	23/5/2013	2.6	3.75
13th Investment – 1st rollover	24/9/2013	2.8	3.74
14th Investment	3/6/2013	2.6	3.64
14th Investment – 1st rollover	3/10/2013	2.6	3.6
15th Investment	11/6/2013	2.6	3.47
15th Investment – 1st rollover	9/10/2013	2.6	3.59
16th Investment	21/6/2013	2.5	3.02
16th Investment – 1st rollover	31/10/2013	2.6	3.69
17th Investment	26/6/2013	2.45	3.11
17th Investment – 1st rollover	4/11/2013	2.6	3.8
18th Investment	17/7/2013	2.4	3.13
18th Investment – 1st rollover	4/11/2013	2.6	3.8
19th Investment	20/7/2013 and 25/7/2013	2.45	3.09 3.19 (on 25/7/2013)
19th Investment – 1st rollover	23/11/2013	2.6	4
20th Investment	26/7/2013	2.45	3.19
20th Investment – 1st rollover	3/12/2013	2.6	3.95
21st Investment	9/8/2013	2.45	3.12
22nd Investment	8/8/2013	2.45	3.13
23rd Investment	5/10/2013	2.65	3.62
24th Investment	17/10/2013	2.6	3.69
25th Investment	30/10/2013 and 31/10/2013	2.6	3.63 (on 30/10/2013) 3.69 (on 31/10/2013)
26th Investment	5/11/2013	2.6	3.8
27th Investment	8/11/2013	2.6	3.63
28th Investment	13/11/2013	2.6	3.69
29th Investment	16/11/2013	2.6	3.86

47.  The 5^th Investment (as it was described in the plaintiff’s witness statement) might be pulled out as one example to demonstrate various unsatisfactory – or, perhaps, simply incredible – elements of the supposed investment:

  (1)  The 5^th Investment was first made when the plaintiff transferred $300,000 from her Savings Account to Ms Liu’s 3646 Account on 8 October 2011.

  (2)  The investment was said to provide a (higher rate) 100% return – doubling the money – or a (lower rate) 65% return.

  (3)  The investment cycle was 150 days, and the maturity and settlement dates were given as 11 May 2012 and 15 May 2012.

  (4)  The Receipt described the interest rates as “p.a.”.

  (5)  But on around 15 May 2012 (the settlement date, and at the end of just 150 days), Ms Liu called the plaintiff to inform her that the total capital and interest was $600,000 (that is the investment had already doubled), and asking if the plaintiff wish to rollover the investment at the same rates of return.

  (6)  Between July 2012 and June 2013, the plaintiff received five purported interest payments totalling $514,000.

  (7)  Later, on around 17 June 2013, Ms Liu called the plaintiff to inform her that on top of those interest deposits, the daily interest on the $600,000 had accrued to $516,000, and the plaintiff still had another $644,000 with Ms Liu.

  (8)  Ms Liu then asked, and the plaintiff agreed, to rollover the investment with an additional investment of $1,000,000 which was transferred from her Savings Account to Ms Liu’s 3646 Account. Therefore, the total investment sum was said to be $2,900,000.

  (9)  On around 22 October 2013, Ms Liu called to inform the plaintiff that the total capital and interest was now $5,800,000, that is the money had doubled in four months.

  (10)  Ms Liu also asked if the plaintiff wish to rollover the investment at the interest rate of 75%/100%, which the plaintiff did by withdrawing some and renewing at $4,300,000.

48.  In cross-examination, the plaintiff was completely unable to identify why she might have accrued daily interest of $516,000, notwithstanding having purportedly been paid interest of $514,000 (on an investment said to have been on the sum of $600,000, of which the plaintiff had in fact provided only $300,000).  Nor could the plaintiff explain why she had another $644,000 with Ms Liu that could be rolled over into the 5^th Investment.

49.  It might also be noted that the 5^th Investment with rollovers was said somehow to have turned the sums of $300,000 (provided in October 2011) and $1,000,000 (provided only in June 2013) into a total of $5,800,000 by October 2013.  On top of that, it was said somehow to have provided purported interest payments paid of $514,000.  Taking into account that most of the money actually provided was provided only in June 2013, the idea that $1,300,000 would be turned into $6,314,000 by October 2013 suggests financial alchemy.

50.  Another example which might be taken is the 6^th Investment, which supposedly would pay a 95% return, should the Target Price of $1 be exceeded, when the market price at the start of the period was over $3.6.  In other words, the market price would have had to drop by more than 70% for the higher return of 95% interest not to be payable – but even then the lower return would still be 90% interest.

51.  Another example might be the 4^th Investment with rollovers, which supposedly took an investment of $700,000 made in July 2011 and turned it into $4,620,000 by October 2013, when the plaintiff again agreed to roll that over for another 70 trading days at a 100% or 75% rate of return.

52.  Against these various elements, even the plaintiff – as she finally acknowledged in her oral evidence at trial – said she had some suspicion that the investments were too good to be true.  She agreed in cross-examination that she never thought about how the Bank might itself make any money from this kind of investment, but she said she trusted the Bank.  She also agreed that it would be correct to describe her as overjoyed, not really caring about the why or how, or about the logic, of the investments.  Essentially, she relied on the Bank or Ms Liu to “do the maths” for her.  But, she has always insisted that she did not suspect that the investments were non-existent, or that she was dealing personally with Ms Liu rather than investing through her with the Bank.

53.  When it comes to the analysis, I think it will be necessary to consider separately and to draw a distinction between those two elements of (a) belief as to existence of the investments and (b) the person/entity with whom the plaintiff thought she was dealing.

54.  A schedule of all payments made by, and received by, the plaintiff was set out in tabular form in the Re-Amended Statement of Claim, as follows:

(A) Date Deposit to Ms Liu	(A)  Amount	(B) Date of Purported Repayment to plaintiff	(B) Amount
(1) 14 September 2010	$300,000
		(1) 27 October 2010	$30,000
		(2) 10 December 2010	$30,000
		(3) 28 January 2011	$30,000
		(4) 18 March 2011	$30,000
(2) 29 April 2011	$300,000
		(5) 9 May 2011	$30,000
(3) 12 May 2011	$200,000
		(6) 17 June 2011	$35,500
		(7) 22 June 2011	$6,375
		(8) 24 June 2011	$30,000
(4) 25 July 2011	$700,000
		(9) 4 August 2011	$8,875
		(10) 9 August 2011	$25,500
		(11) 11 August 2011	$30,000
		(12) 22 September 2011	$6,375
		(13) 22 September 2011	$8,875
		(14) 28 September 2011	$7,500
(5) 8 October 2011	$300,000
(6) 7 November 2011	Chq $855,000
		(15) 15 November 2011	$8,875
		(16) 15 November 2011	$6,375
		(17) 21 November 2011	$7,500
		(18) 13 January 2012	$35,500
		(19) 16 January 2012	$25,000
		(20) 20 January 2012	$30,000
(7) 28 February 2012	$400,000
		(21) 2 March 2012	$35,500
(8) 20 March 2012	$700,000
		(22) 22 March 2012	$27,500
		(23) 23 March 2012	$32,000
		(24) 4 May 2012	$46,000
(9) 9 May 2012	$200,000
		(25) 18 May 2012	$38,500
		(26) 21 May 2012	$28,000
		(27) 22 May 2012	$33,000
		(28) 4 June 2012	$29,000
		(29) 18 June 2012	$17,750
		(30) 20 June 2012	$15,000
		(31) 9 July 2012	$76,000
		(32) 23 July 2012	$29,000
		(33) 3 August 2012	$49,000
		(34) 9 August 2012	$31,850
		(35) 18 August 2012	$35,500
		(36) 20 August 2012	$30,000
		(37) 24 September 2012	$13,500
		(38) 24 September 2012	$15,000
		(39) 24 September 2012	$17,750
		(40) 24 September 2012	$38,000
		(41) 8 November 2012	$23,500
		(42) 8 November 2012	$49,000
(10) 13 November 2012	$700,000
(11) 19 November 2012	Chq $300,000
		(43) 14 December 2012	$30,000
		(44) 14 December 2012	$30,000
		(45) 8 January 2013	$156,000
		(46) 8 January 2013	$58,000
		(47) 8 January 2013	$71,000
(12) 4 February 2013	Chq $400,000
(13) 4 February 2013	$200,000
		(48) 15 March 2013	$60,000
		(49) 15 March 2013	$71,000
		(50) 15 March 2013	$58,000
		(51) 18 March 2013	$156,000
(14) 18 March 2013	$500,000
		(52) 8 April 2013	$50,863
(15) 23 May 2013	$2,700,000
(16) 3 June 2013	$200,000
(17) 11 June 2013	$1,500,000
		(53) 17 June 2013	$88,000
(18) 18 June 2013	$200,000
(19) 21 June 2013	$2,000,000
(20) 26 June 2013	$1,000,000
(21) 17 July 2013	$100,000
(22) 17 July 2013	$500,000
(23) 20 July 2013	$640,000
(24) 25 July 2013	$1,000,000
(25) 26 July 2013	$900,000
(26) 26 July 2013	Chq $100,000
(27) 9 August 2013	$3,000,000
		(54) 20 August 2013	$50,000
		(55) 30 September 2013	$1,140,000
(28) 5 October 2013	Chq $80,000		$80,000
(29) 5 October 2013	$320,000		$320,000
(30) 17 October 2013	$1,775,000		$1,775,000
		(56) 25 October 2013	$2,020,000
(31) 30 October 2013	$700,000
(32) 31 October 2013	Chq $100,000
(33) 31 October 2013	$150,000
		(57) 4 November 2013	$1,500,000
(34) 5 November 2013	$5,170,000
(35) 8 November 2013	$1,500,000
(36) 13 November 2013	$4,970,000
(37) 16 November 2013	$500,000
		(58) 16 November 2013	$1,000,000
		(59) 17 December 2013	$200,000
		(60) 17 December 2013	$266,000
		(61) 17 December 2013	$400,000
		(62) 17 December 2013	$2,780,000
Total:	$35,160,000		$11,317,463
(A) – (B) Amount	$23,842,537

55.  In the table above, payments made by cheque are shown as “Chq” in that column.  But most of the payments were made by bank transfer from the plaintiff’s Savings Account directly to Ms Liu’s 3646 Account.  It was unchallenged evidence from the plaintiff that she was never approached by, nor contacted by, anyone from the Bank relating to any of the transfers she made from her Savings Account to Ms Liu’s 3646 Account (nor any payments received back into the Savings Account).

56.  Indeed, amongst the documents kept by the plaintiff and produced as evidence in these proceedings are numerous withdrawal slips and deposit slips which evidence the transfer of the funds having been effected by physical attendance at the Bank’s branches.  Each slip shows the branch at which the transfer and/or deposit was made, and the teller responsible for the transaction.  Most of the withdrawal slips show the transfer was made at the Happy Valley Branch (Branch Code 61102), often by the same tellers (numbers 5588 and 6094).  This may be because the plaintiff was living in Happy Valley. It seems to be undisputed, and in any event I accept, that Ms Liu sometimes worked at the Happy Valley Branch, as well as at the North Point Branch.  The plaintiff gave evidence that Ms Liu was sometimes physically with her when she made the transfers to Ms Liu’s account.  Other withdrawal slips or deposit slips show the transactions to have been effected at the Central Branch (60602), the Causeway Bay Branch (62002), and occasionally other branches.

57.  The plaintiff also says, and I accept, that she was under the impression (rightly or wrongly) that the Bank would have been aware of those activities between a staff member’s account and a customer’s account – not least where the sums of money were vastly in excess of what might be expected of Ms Liu at her income level – and that the Bank would have taken action to inquire should there have been any impropriety.

58.  As to whether staff would know each other, Mr Wong gave evidence about the North Point Branch, with which he was obviously familiar.  He said it would be correct to describe it as a small branch, with a small staff, and where everyone knew everyone amongst the staff.  Mr Wong was less familiar with other branches, but it seems that the Happy Valley Branch was of a similar, or perhaps an even smaller, size as regards the number of staff.

59.  Before leaving the documentation, it can be noted that the plaintiff apparently made contemporaneous notes on the Receipts, Online Records and withdrawal/deposit slips, as well as against individual entries posted in the Savings Account passbook.  Those notes included her identification of the relevant investment or rollover, both for payments made and received by her.  I accept those notes provide some evidence of her contemporaneous belief in the true existence of the various investments.

60.  But there is another potentially relevant feature of the notes.  Frequently, the plaintiff’s notation appears to ascribe different parts of the amounts invested to different persons, including friends and family members.  Whilst the plaintiff says that was to keep a record of who had lent her the money which she used in relation to particular investments, the notations also seem to me at least potentially to identify that the plaintiff was in effect ‘fronting’ for a number of different people when engaging in the investments through Ms Liu.  It does not seem to be surprising that, had the plaintiff mentioned to other people the extraordinary returns on these investments, some of those other people might have wanted to benefit from their relationship with the plaintiff and ‘get in on the action’.

61.  One of the other people mentioned in the notations was Mr Cheng Tsz Bong (“Mr Cheng”).  As the plaintiff identified in her evidence, she and Mr Cheng have known each other since they were 15 years old.  Though they were married in August 2015, though they divorced in July 2017, but remain very close.  The plaintiff told Mr Cheng about the investments, and the plaintiff says that between July 2011 and November 2013 Mr Cheng lent her a total of around $26 million, of which she had returned to him around $9,858,500 between September 2012 and January 2014.  The plaintiff says she still owes Mr Cheng around $16 million, and is solely responsible for repaying him.

62.  Throughout the material period, the plaintiff received statements for the Securities Account by post at her home address (including after she notified a change of address).  The statements began on 18 October 2012, and were provided quarterly.  None of those statements showed any transactions or other activity in the Securities Account.  The plaintiff never queried the absence of any activity being shown on those statements.  In her evidence, she explained that was because she understood ELNs to be a different form of investment than securities.  Indeed, she also told the police (see below) that she had received statements for the Securities Account, and remembered there was no record of her investments on those statements; but she was not mindful of that, because previously she had always believed that the investments were ‘internal’ investments which would not appear on those records.  But, though it is correct that ELNs are distinct from stocks or securities investments, the plaintiff does not seem to have sought to reconcile that fact with the other fact that she went to the Bank precisely to be able to participate in this type of investment, but was asked only to open (and did only open) the Savings Account and the Securities Account.  There is, of course, also the mismatch between an internal investment arrangement, and one between the Bank and an external customer.

63.  Further, the plaintiff plainly thought that she ought to be receiving some other documentation.  As she recounted in evidence, at some point she asked Ms Liu (several times) how she was not able to see past records.  But Ms Liu said that the documents already provided were the records, and that the entire list would become available only at the earliest a year or so later.

64.  In her witness statement, as in the police statements, the plaintiff explained that from around August 2013 Ms Liu started to be late in depositing some of the interest due and failed to repay some of the investment principal.  (I note in passing that the documents suggest tardiness from earlier than that.)  Later, in November 2013, the plaintiff intended the purchase of property (which she explained in oral evidence was for her parents to live in), so started to ask for the return of money from Ms Liu.  However, Ms Liu kept delaying payment with different excuses.

65.  On 3 March 2014, the plaintiff and Mr Cheng met Ms Liu in the North Point area, and talked in Mr Cheng’s car.  Ms Liu kept telling them that there were issues with the handling procedures within the Bank, hence the money had yet to be withdrawn.  Ms Liu promised to return the money on the following Wednesday, and before leaving asked the plaintiff not to contact the Bank or call the police.

66.  Obviously, by this time, the Plaintiff was highly suspicious and disbelieving of Ms Liu.  Therefore, the plaintiff called the Bank, and was ultimately put through to the North Point Branch manager, Mr Wong.  Shortly afterwards, the plaintiff and Mr Cheng met Mr Wong at the branch.  In their conversations, Mr Wong explained to the plaintiff that the Bank had no records of any purported ELNs invested in by the plaintiff, and that the purported receipts shown to him were fake and not generated by the Bank.  Mr Wong also explained that a wealth management account would be required for any equity-linked products.

67.  On leaving the North Point Branch, the plaintiff called Ms Liu again to seek an explanation as to what had actually happened.  Mr Cheng, the plaintiff and Ms Liu met at her home.  I accept the plaintiff’s evidence that prior to being told it that evening, the plaintiff did not have Ms Liu’s address (and she took the trouble to check it with Mr Liu before going to the address).

68.  The plaintiff made an audio recording of the meeting.  A transcript of that recording (and an English translation) was provided in the trial bundle.  The transcript reveals, amongst other things, the following:

 (1)  the plaintiff’s recognition that she had been cheated for a period of time into a fourth year;

 (2)  the papers that Ms Liu had provided to the plaintiff were rubbish;

 (3)  but the plaintiff had trusted Ms Liu because all the documents came from the Bank and were stamped, there were receipts, which all had dates, and Ms Liu sat at the Bank counter in the branch;

 (4)  Ms Liu had not deposited any money into any account or investment for the plaintiff;

 (5)  instead, Ms Liu had lost all the money in her own warrant – callable bull/bear contracts – trading;

 (6)  that trading was performed by Ms Liu using her own name and her own securities account with the Bank;

 (7)  Ms Liu could not remember on which contracts she lost, because she bought so many a day;

 (8)  Ms Liu said that she did not give the money to somebody else;

 (9)  Ms Liu’s boss would not care so long as she met her sales targets;

 (10)  the sales target was $2 billion plus.

69.  The transcript lends some support to the idea that the plaintiff and Ms Liu were friends, because (amongst other things) Mr Cheng asked Ms Liu how she could have cheated her friend.  Against the fact that the plaintiff was friends with Mr Liu, who had introduced the plaintiff and Ms Liu to each other, I am not sure much weight can be read into that as identifying any close friendship between the plaintiff and Ms Liu.  The transcript also deals with another aspect on which I have already touched and to which I can return later, namely whose money was provided by the plaintiff for the investments.

70.  After meeting the plaintiff and Mr Cheng on the evening of 3 March 2014, Mr Wong contacted other persons in the Bank.  As a result, Ms Olivia Lam, then the Bank’s District Manager of Hong Kong District, contacted Ms Yip for them to arrange and hold an interview with Ms Liu at the Bank’s head office at 9am the following morning, 4 March 2014.  In her evidence, Ms Yip explained that at that meeting Ms Liu readily “admitted” that the plaintiff was her personal friend, whom she had known before the plaintiff first opened bank accounts with the Bank; that the arrangement was a private arrangement between the two of them; that the plaintiff had given Ms Liu money which she had used to invest in securities; and that Ms Liu could not repay the plaintiff because funds could not be arranged in time.  Ms Liu also admitted to creating and forging the documents which the plaintiff claimed to have been issued by the Bank.

71.  Later the same day, Ms Lam and Ms Yip met Ms Liu again.  Between the two meetings, Ms Liu had been asked to remain at the Bank’s head office, and she had not returned to the North Point Branch.  At the second meeting, Ms Liu was asked to – and did – sign a typed confirmation in Chinese, drafted and prepared on what she had said earlier namely: (1) because of her personal relationship with the plaintiff, Ms Liu referred the plaintiff to open bank accounts at the Bank; (2) the plaintiff made private arrangements in respect of the alleged investment with Ms Liu, and had transferred money to the latter’s account on her own volition; and (3) Ms Liu created the documentary records of transactions which she gave to the plaintiff, and the Bank never issued any documents relating to the alleged investment.

72.  Ms Yip also said in evidence that just before the end of that meeting, Ms Lam asked Ms Liu where she met the plaintiff to take orders, and Ms Liu said she had taken orders of ELNs from the plaintiff at face-to-face meetings with her over dinner or drinks held outside the Bank’s premises.  No written record was made of that supposed statement.  In fact, perhaps surprisingly, no notes were apparently kept of either meeting that day.

73.  Ms Liu was suspended by the Bank from her duties as from 4 March 2014.  There is no suggestion in the evidence that anyone from the Bank spoke again to Ms Liu at any time between 4 March 2014 and the formal termination of her employment by letter dated 11 April 2014.

74.  Also between the two meetings held with Ms Liu, Ms Lam and Ms Yip met the plaintiff and Mr Cheng at the Bank’s head office in the afternoon of 4 March 2014.  I do not think any notes were kept of the meeting, as none have been disclosed.  I do not intend to place any great weight on what Ms Yip says transpired at that meeting, though there was obviously some discussion about the various apparent investment dealings between the plaintiff and Ms Liu and reference to the nature of their relationship.

75.  At the end of the meeting with the plaintiff, it was originally arranged that the Bank would look into the matter further and would contact the plaintiff again.

76.  Later in the evening of 4 March 2014, the plaintiff attended the North Point Police Station to report the fraud.  She made the first of three police statements.  Later, the first and third statements appear to have been the basis of much of the plaintiff’s witness statement filed in and for these proceedings.  Amongst the matters stated to the police in the first statement, in which she broadly set out the complaint, was the following passage, on which Mr Li places some reliance (emphasis added by Mr Li):

Later in November 2013, as I had to buy property, so I started to chase [Ms Liu] for money back, as from August 2013 she had started to fall behind and delayed depositing the investment interests into my account.  Separately, she still had not returned to me some of the principal of my previous investment.  After rounds of chasing, [Ms Liu], for the last time on 17 December 2013, deposited $3,646,000 HKD into my account through for transfers, and no money was deposited thereafter.  In summary, the principal sum I invested via [Ms Liu] is in a total sum of $33,000,705, and the interest and principal sum I had received is $11,317,463 HKD.

77.  Mr Li submits that the reference to chasing Ms Liu, because Ms Liu had fallen behind in payments and in returning the principle, and that Ms Liu deposited money into her account, shows that the plaintiff knew that she was dealing with Ms Liu personally, and not with the Bank.  Read on its own, that passage might well give that impression.  But, in fairness, it is immediately followed by passages in the statement which identify discussions about problems inside the Bank, phone calls made to the Bank, and then direct contact between the plaintiff and the Bank.

78.  The plaintiff’s evidence was that she chased Ms Liu for payment, and that she referred to Ms Liu making payments, at least in part because Ms Liu was the plaintiff’s contact point at the Bank.  In that regard, it does not seem to me to be necessarily unnatural to refer in conversation to chasing Ms Liu and to Ms Liu making payments, and so forth.  I have already noted that the entries showing the deposits in the Savings Account passbook do not identify the depositor (although the transaction codes reveal each to be a ‘NBTRF’, meaning ‘no book transfer’, or ‘NBCQ’, meaning ‘no book cheque deposit’).  I would also refer in this context to the fact that the plaintiff was given by Ms Liu documents purportedly created by the Bank, which must have been intended to lead the plaintiff to believe that these were proper banking investment transactions. However, what seems odd is that when the plaintiff and Mr Cheng confronted Ms Liu, they did so privately and not at any Bank premises, or during banking hours.

79.  The second police statement was made on 6 March 2014, and related to the plaintiff’s picking out Ms Liu in an identification parade.

80.  On 11 April 2014, Ms Liu’s employment was terminated by the Bank.  The termination letter was brief.  It simply informed Ms Liu that her employment as Securities Service Manager of the North Point Branch with the Bank was terminated with immediate effect, and that the letter served as formal notification of the termination of employment. Ms Liu was asked to contact a member of the Human Resources Department for the departure formalities.  There is no suggestion that there was any contact between officers of the Bank and Ms Liu in the period of her suspension before termination.  There is a sense that the Bank was quickly seeking to place some ‘distance’ between itself and an errant employee, of whose fraudulent antics over a period of a few years it had remained wholly unaware.

81.  The third police statement made by the plaintiff was made on 22 May 2014.  In it, and with the benefit of the various documents provided by the plaintiff to the police, the plaintiff sought to explain the various investments, how they occurred, what funds were injected, and what returns were received.

82.  Because the plaintiff had made a police complaint, which led to the police investigating the fraud, representatives of the Bank ceased to have further discussion with the plaintiff (with the plaintiff’s agreement).  Instead, the Bank assisted the police with their enquiries.  Part of the assistance was to provide copies of various account statements and other documents relating to the accounts operated by Ms Liu and her brother, Mr Liu.

83.  It seems that the Bank also made some internal investigation of its own, but I have not been told much of the results of that investigation.  Broadly, the Bank looked at the same account statement materials, and Bank staff would have noticed the payments between the Plaintiff’s Savings Account and the 3646 Account, and between the 3646 Account of Ms Liu and the accounts of Mr Liu.  It seems Bank staff also paid attention to the two securities accounts of Ms Liu and Mr Liu.  I will return later to what the analysis of the movement of funds between the various accounts might identify.

84.  In any event, the police investigations led to the prosecution of Ms Liu for three counts of fraud under section 16A of the Theft Ordinance Cap 210.  The first charge related to the plaintiff, namely that between 14 September 2010 and 17 December 2013, both days inclusive, Ms Liu by deception falsely represented to the plaintiff that she had some high return investment products named Wing Lung High Yield Equity-linked Notes and intended to defraud and induce the plaintiff to buy those investment products, the amount of which was $35,160,000, resulting in her own benefit and causing the plaintiff to be prejudiced.

85.  The ‘admitted facts’ relating to that charge – that is, the facts admitted by Ms Liu as being correct for the purposes of the conviction and sentence – included the following, as were recorded by the sentencing Judge:

Starting from August 2013, [Ms Liu] started to delay, or in a timely manner, paying interest to [the plaintiff] in addition to not paying [the plaintiff] part of her former investment principal.  [The plaintiff] had repeatedly discussed with [Ms Liu] about getting back her money and [Ms Liu] promised to return all the money back to [the plaintiff] on 5 March 2014.  [The plaintiff] took the receipts and other documents that [Ms Liu] had given to her to Wing Lung Bank and confirmed that they were not issued by Wing Lung Bank.  On 3 March 2014, [Ms Liu] had a meeting with [the plaintiff] and admitted to [the plaintiff] that she had deceived her, and that she had invested [the plaintiff’s] money in stocks and lost it all.  Although [Ms Liu] promised that she would return all the money to [the plaintiff] on 5 March 2014, [the plaintiff] no longer trusted [Ms Liu] and reported the matter to the police.

86.  In sentencing, the Judge pointed out that the amount involved in the first charge was far more than the highest amount in the sentencing guidelines.  The offence took place with a plan and over a long period of time.  The Judge also pointed out that Ms Liu even used false documents to carry out her offence and to conceal her actions to defraud.  He pointed out that the return of some money to the plaintiff was clearly not to mitigate the plaintiff’s loss, but for Ms Liu to continue her defrauding scheme and to avoid being discovered earlier.  The sentence was 9 years and 4 months for the first charge.  The Judge also referred to the use of false documents in the third charge.  The overall total sentence (making the sentence of the first and second charges concurrent, and one year of the third charge sentence separate) came to a total of 10 years and 4 months.  On 24 May 2016, with reasons dated 31 May 2016, the Court of Appeal reduced the sentence on the first charge to 8 years, and the overall sentence to 9 years and 4 months.

87.  Ms Liu is still serving that sentence.  At the Pre-Trial Review, I was asked to grant leave for a late witness statement from Ms Liu to be filed for the plaintiff, and to require Ms Liu to be produced to attend as a witness at the trial.  I granted that leave and made that order.  However, subsequently Ms Liu wrote directly to the court saying that she no longer wished to give evidence, and that her mind was confused.  In the circumstances, the plaintiff chose not to call Ms Liu as a witness, and the witness statement was removed from the trial bundle.

88.  In the meantime, by letter dated 11 April 2016, the plaintiff’s solicitors wrote to the Bank to make a demand for payment of the loss or damage in the sum of $23,842,537.  The letter states that it was sent on the instructions of both the plaintiff and Mr Cheng, and states that the two of them together suffered that loss.

89.  On 29 June 2016, the plaintiff made a complaint to the Hong Kong Monetary Authority, complaining that she had been defrauded by the Bank to enter into a fraudulent investment scheme, that the Bank refused to handle her complaint and had never given her any explanation as to why they refused to compensate her for her loss, and that the Bank had failed properly to supervise its staff member, Ms Liu.

90.  The transcript of the confrontation between the plaintiff and Ms Liu in March 2014 made reference to a performance target to be achieved by Ms Liu (see above).  Produced in evidence was the Performance Appraisal Form 2012, an internal Bank document appraising the performance of Ms Liu for the period 30 April 2012 to 30 January 2013.  The overall performance was weighted 40% as to Competences (standardised competences to evaluate staff’s performance) and 60% as to KPI Measures (individualised targets/KPI’s set for the performance year).

91.  Against ‘functional expertise’, it was noted that:

The branch has only recorded a commission income of HKD4,434,000 and a margin income of HKD71,279.49 within the year, with annual percentage of goal accomplishment at 64.8% and 59.4% respectively, ranking at 6 and 19.

92.  Against the going commission rate, this does identify a total business turnover set of in excess of $2 billion (and, in his evidence, Mr Wong confirmed on the arithmetic that the target was perhaps $2.73 billion).  Though I accept that such a required turnover, even if it was shared between Ms Liu and any other member of staff at the branch, must have placed significant pressure on her to perform by obtaining significant securities business, I do not think that is likely what really triggered the long term defrauding of the plaintiff by Ms Liu.

93.  Amongst other things, the Performance Appraisal Form also corroborates the plaintiff’s evidence that Ms Liu worked temporarily in branches other than the North Point Branch.  The Form was signed by Ms Liu, and by the appraiser Ho Po Hung and the Branch Head Chiu Chi Man (neither of whom have been called to give evidence).

94.  There is a similar Performance Appraisal Form 2013 for the period from 1 March 2013 to 21 February 2014 which is similar in nature, but lacks specific comments.  It was also signed by Ms Liu, Ho Po Hun and Chiu Chi Man, in February 2014.

95.  The question also arises, of course, as to what happened to the funds transferred by the plaintiff to Ms Liu.  During the trial, un-redacted bank account statements of Ms Liu’s 3646 Account were provided by the Bank.  With those, it has been possible to perform some analysis as to the fund flows.  That analysis has been provided in an agreed Excel spreadsheet, showing transfers between the plaintiff and Ms Liu, between Ms Liu and her brother Mr Liu, and between Ms Liu and her securities settlement.  In broad terms, it seems the monies transferred by the plaintiff to Ms Liu were subsequently transferred by Ms Liu to accounts held by her brother Mr Liu, also at the Bank.  Similarly, it is possible to see the return of funds from Mr Liu to Ms Liu, and broadly onwards back to the plaintiff.

96.  The following table sets out the overall figures for the period from September 2010 to December 2013 (ignoring odd cents):

Direction of funds	Amount
From plaintiff to Ms Liu	$33,925,585
From Ms Liu to Mr Liu	$31,600,314
From Mr Liu to Ms Liu	$9,120,988
From Ms Liu to plaintiff	$9,465,752

Note: There was in addition a transfer of $2,780,000 from Mr Liu’s account direct to the plaintiff’s Savings Account on 17 December 2013 (not passing through Ms Liu’s 3646 Account).  This is item (62) of the purported repayments identified in the table at paragraph 54 above.

97.  Over the same period Ms Liu sent $23,746,241 from the 3646 Account to her Securities Account, and received back $23,858,281.  This suggests the securities trading performed by Ms Liu in her own name was broadly self-contained.

98.  Therefore, the inference seems to be that the vast majority of the funds which were provided by the plaintiff to Ms Liu were subsequently transferred by Ms Liu to accounts held in the name of her brother Mr Liu, and that whatever investment or trading was performed with those funds was engaged in in the name of Mr Liu.  Further, looking at the pattern of payments between the accounts of Ms Liu and Mr Liu (including multiple transfers on the same business day, see further below), it seems to me to be likely that Ms Liu had authorisation somehow to operate Mr Liu’s accounts.

99.  The following tables were provided by Ms Kong (though I have renumbered them and put them into chronological order starting with the earliest grouping of payments) using the Excel spreadsheet to identify the movement of funds between the plaintiff, Ms Liu and Mr Liu in specific instances:

Table 1

Date	From plaintiff ($)	To Mr Liu ($)
28 Feb 2012	400,000	50,000
29 Feb 2012		50,000
1 Mar 2012		50,000
2 Mar 2012		50,000
3 Mar 2012		50,000
5 Mar 2012		50,000
Total	400,000	300,000

Table 2

Date	From plaintiff ($)	To Mr Liu ($)
20 Mar 2012	700,000
21 Mar 2012		500,000
21 Mar 2012		50,000
22 Mar 2012		50,000
24 Mar 2012		290,000
Total	700,000	890,000

Table 3

Date	From plaintiff ($)	To Mr Liu ($)
9 May 2012	200,000
10 May 2012		50,000
11 May 2012		50,000
15 May 2012		50,000
22 May 2012		32,650
Total	200,000	182,650

Table 4

Date	From plaintiff ($)	To Mr Liu ($)
13 Nov 2012	700,000
14 Nov 2012		300,000
15 Nov 2012		10,500
19 Nov 2012		50,000
20 Nov 2012		50,000
21 Nov 2012		300,000
22 Nov 2012		50,000
Total	700,000	760,500

Table 5

Date	From plaintiff ($)	To Mr Liu ($)
23 May 2013	2,700,000	500,000
23 May 2013		300,000
25 May 2013		600,000
29 May 2013		300,000
31 May 2013		50,000
3 Jun 2013		50,000
3 Jun 2013	200,000	50,000
4 Jun 2013		200,000
5 Jun 2013		200,000
5 Jun 2013		50,000
Total	2,900,000	2,300,000

Table 6

Date	From plaintiff ($)	To Mr Liu ($)
11 Jun 2013	1,500,000
17 Jun 2013		50,000
17 Jun 2013		50,000
17 Jun 2013		400,000
17 Jun 2013		300,000
18 Jun 2013	200,000	50,000
21 Jun 2013	2,000,000	1,000,000
24 Jun 2013		300,000
26 Jun 2013	1,000,000
2 Jul 2013		800,000
2 Jul 2013		50,000
9 Jul 2013		300,000
Total	4,700,000	3,300,000

Table 7

Date	From plaintiff ($)	To Mr Liu ($)
17 Jul 2013	100,000
17 Jul 2013	500,000
18 Jul 2013		200,000
19 Jul 2013		30,650
20 Jul 2013	640,000
22 Jul 2013		400,000
25 Jul 2013		50,000
25 Jul 2013	1,000,000
26 Jul 2013	900,000
29 Jul 2013		850,000
31 Jul 2013		32,440
1 Aug 2013		300,000
Total	3,140,000	1,863,090

Table 8

Date	From plaintiff ($)	To Mr Liu ($)
9 Aug 2013	3,000,000	1,000,000
20 Aug 2013		700,000
21 Aug 2013		94,000
27 Aug 2013		50,000
27 Aug 2013		300,000
30 Aug 2013		40,000
30 Aug 2013		200,000
2 Sep 2013		50,000
4 Sep 2013		200,000
Total	3,000,000	2,634,000

Table 9

Date	From plaintiff ($)	To Mr Liu ($)	From Mr Liu ($)
17 Oct 2013	1,775,000
21 Oct 2013		1,000,000
25 Oct 2013			1,000,000
25 Oct 2013			180,000
26 Oct 2013			50,000
28 Oct 2013			30,000
30 Oct 2013	700,000
31 Oct 2013	150,000
4 Nov 2013			760,000
5 Nov 2013	5,170,000
7 Nov 2013		2,000,000
7 Nov 2013		49,000
8 Nov 2013	1,500,000
11 Nov 2013		1,000,000
11 Nov 2013		600,000
13 Nov 2013	4,970,000	50,000
16 Nov 2013	500,000	4,100,000
18 Nov 2013		40,000
19 Nov 2013		50,000
19 Nov 2013		800,000
23 Nov 2013		650,000
25 Nov 2013		50,000
28 Nov 2013		840,000
3 Dec 2013			120,000
12 Dec 2013			195,000
13 Dec 2013			300,000
16 Dec 2013			100,000
17 Dec 2013			900,000
Total	14,765,000	11,229,000	3,635,000

100.  The tables demonstrate that the large sums received from the plaintiff by Ms Liu were broken up by Ms Liu into smaller sums before being transferred to Mr Liu’s account within a short period.  Subsequently, on occasions, funds flowed back from Mr Liu to Ms Liu, again in relatively small amounts, on occasions with multiple transfers within the same banking day.

101.  Ms Kong might also have pointed to the sum of $500,000 received by Ms Liu from the plaintiff on 18 March 2013, and the same sum of $500,000 transferred by Ms Liu to Mr Liu on 20 March 2013.

102.  It is also apparent from the Excel spreadsheet, as well as from the description of the various investments (see above), that the amounts transferred between the plaintiff and Ms Liu increased significantly in around mid-2013.  There were three occasions when the plaintiff made transfers of over $3 million to Ms Liu: (1) $3 million on 9 August 2013; (2) $5.17 million on 5 November 2013; and (3) $4.97 million on 13 November 2013.  Within that period, the plaintiff made seven other transfers into Ms Liu’s 3646 Account amounting to $4.625 million.

103.  In other words, within the three month or so period between 9 August 2013 and 13 November 2013, the plaintiff transferred a total of $17.765 million into Ms Liu’s 3646 Account.  If one goes back another three months, it can be seen that the plaintiff made another 12 transfers into Ms Liu’s 3646 Account, so that the plaintiff transferred over $28.6 million in less than six months from 23 May 2013 to 13 November 2013.

104.  The reference to transfers of sums over $3 million arises because of Mr Wong’s evidence that the Bank would treat any transaction of or above that sum as a ‘significant’ transaction.  He explained that when a significant transaction was completed, there would be a report generated on the next business day, and someone from the Bank would telephone the account holder to ascertain whether the transaction was genuinely instructed by the account holder.  The purpose was to ensure prevention of instructions which did not originate from the account holder, to protect the account holder from funds being stolen by a third party.  However, Mr Wong also identified that no other questions would be asked, including as to the purpose of the transfer.

105.  I accept the inference to be drawn from the plaintiff’s evidence is that no one from the Bank ever called her to ask any questions, including as to proper authorisation, on any of the transfers, even those at or exceeding $3 million.  On the other hand, I accept that any contact would probably only have sought to confirm – and would have confirmed – that the plaintiff intended to (and so, obviously, had authorised) the transfer of those sums.

106.  On 16 November 2013, Ms Liu transferred $4.1 million to her brother Mr Liu.  As Ms Kong points out, $4.1 million represents approximately 20 years of Ms Liu’s then monthly salary of $17,400, and the transfer was made by a Bank employee to a recipient with the same surname.  Anyone looking at the account details would also have seen that the $4.1 million was apparently or possibly a sizeable part of the $4.97 million received by Ms Liu from the plaintiff three days before.  On Mr Wong’s evidence, someone from the Bank ought to have contacted Ms Liu in relation to that significant transaction.  There is no evidence as to whether or not anyone from the Bank made inquiry of Ms Liu.

107.  But in any event, it may be too difficult to speculate as to what might have occurred upon any such inquiry.  On one view, Ms Liu would almost certainly have answered any inquiries in such a way as to to try to keep away suspicion of any wrongdoing on her part.  In the context of the one payment, it may have been easy to explain a payment to her brother.  It may have been more difficult had more intrusive questions being asked in the context of the funds flowing in and out of her account over time, and in particular in the previous few months.  Of course, by 16 November 2013, the plaintiff had already made all payments that she would make to Ms Liu for the purported investments.  It is also hugely unclear what might have happened even if the ‘balloon had gone up’ on or after 17 November 2013, and how that might have impacted the returns of funds made to the plaintiff (there being only four sums of money paid after that date, all on the same day 17 December 2013, one sum coming directly from Mr Liu’s account to the plaintiff’s Savings Account).  None of this was explored in evidence at the trial.

C.     The Contract Terms

108.  Ms Kong relied on the following terms as being material.

109.  In the Bank’s written “General Conditions for Account Services” effective from October 2005 (“2005 Conditions”), reference was made to:

3.7  We need not act on any instruction if it is not, in our opinion, practicable or reasonable to do so.  We may decline to act on your instructions without giving any reason and without liability.

4.5  Unless you try to defraud or have been grossly negligent, you will not be responsible for unauthorised transactions (a) arising from forgery or fraud of a third party in relation to which we have failed to exercise reasonable care, (b) arising from forgery, fraud, default or negligence of our employees or agents.

110.  The 2005 Conditions were subsequently replaced by a new version of the document effective from February 2012 (“2012 Conditions”).  Ms Kong made reference to [sic]:

3.10  We need not act on any instruction if it is not, in our opinion, practicable or reasonable to do so.  We may decline to act on your instructions without giving any reason and without any liability.

18.1  We will use reasonable care in carrying out your instructions on your behalf (unless as act as principal in a transaction with you).  Our responsibilities are limited to those expressly set out in these Conditions and our terms and conditions (if any) for the relevant service or transaction.  These Conditions apply, to the extent possible, to transactions on your behalf as well as with us.

18.3  We may do or refrain from doing anything we believe in good faith is required in order to comply with any law, regulation, rule, practice, custom or usage including the rules, codes, guidelines and practices of regulatory authorities, the Hong Kong Association of Banks, exchanges and clearing houses.  All such actions and omissions bind you.

20.8  When it is necessary in our view to protect our interests, we may (but is not obliged to) suspend or freeze any accounts or services.  We may freeze your accounts … if there appears in our opinion in good faith to be any irregularity in connection with your account.

111.  As regards the defences of contributory negligence or circuity, Mr Li relied on the following terms as being material.

Clauses 15.1 and 15.2 of the Securities Services Agreement:

15.1  Confirmation and Account Statements:

…

(b)  The Bank shall provide you with such reports and statements concerning the Transactions conducted on behalf of you pursuant to this Agreement on a monthly basis provided that the Bank may elect not to send any such reports and statements to you in respect of any month where no Transaction has been conducted on behalf of you or where there is no revenue or expense item, or no outstanding balance or holding position or collateral, in the Securities Account for that month.  If you have conducted Transactions in any particular month or has an account balance at the end of any particular month but fail to receive the statement relating to that month within ten (10) days after the end of the month, you shall be under a duty to immediately notify the Bank and request a copy thereof.

(c)  You acknowledge that you have an affirmative duty to promptly review any and all trade confirmations and statements for accuracy and completeness and to immediately notify the Bank of any item you believe to be in error.  You acknowledge that in the absence of manifest error, all transactions set out in any confirmation, report and statement shall be deemed accurate and conclusive unless the Bank receives written notice to the contrary from you within ninety (90) days of sending you the confirmation, report or statement.  You agree that Bank shall not be liable for any losses resulting from your delay in reporting any error to it.

15.2  Conclusive statement: The Bank’s books and records regarding the quantity, type, and particulars of the Securities (including the Registered Securities and/or Eligible Securities, if any) in the Account for Securities transactions of you with the Bank at any time shall be final and conclusive and binding on you, save for manifest error.

Clauses 9.2, 9.3 and 16.1 of the May 2009 General Conditions:

9.2  You agree to examine each statement of your account carefully on receipt.  If you discover any error, discrepancy, claim or unauthorized debit, you will notify us as soon as reasonably practicable and, in any event, within 90 days of receipt of the statement.

9.3  If you fail to advise us as required by Condition A 9.1 or 9.2, all entries to the statement are conclusive and binding on you.  However, you are not responsible for unauthorized transactions arising from (a) forgery and fraud of a third party in relation to which we have failed to exercise reasonable care or (b) forgery, fraud, default or negligence of our employees or agents.

…

16.1  Our records (whether in paper, microfilm, electronic or any other form) of transactions with you and messages sent to or received from you (including exchange rates) are, save to the extent of manifest error, conclusive and binding on you.  You agree that they shall be admissible in the courts as evidence of the existence of the transactions and messages, and of the facts contained in them, to the extent permitted by applicable law.

Clause 11.2 of the May 2009 General Conditions:

11.2  You will indemnify us on demand against any claim, liability or loss, or reasonable expense arising from any breach by you of these Conditions or the terms of a transaction, or any tax or other levy in connection with your account or a service.

D.     Regulatory Documents

112.  In the ‘Guideline on Prevention of Money Laundering’, a Guideline issued by the Monetary Authority under section 7(3) of the Banking Ordinance, and the July 2010 Revision to the Supplement to that document, reference was made by Ms Kong to the following:

Guideline

8.  Recognition of suspicious transactions

8.1  As the types of transactions which may be used by a money launderer are almost unlimited, it is difficult to define a suspicious transaction.  However, a suspicious transaction will often be one which is inconsistent with a customer’s known, legitimate business or personal activities or with the normal business for that type of account.  Therefore, the first key to recognition is knowing enough about the customer’s business to recognize that a transaction, or series of transactions, is unusual.

8.2  Examples of what might constitute suspicious transactions are given in Annex 5. These are not intended to be exhaustive and only provide examples of the most basic ways in which money may be laundered.  However, identification of any of the types of transactions listed in Annex 5 should prompt further investigations and be a catalyst towards making at least initial enquiries about the source of funds.

9.  Reporting of suspicious transactions

9.1  The reception point for disclosures under the DTROP and the OSCO is the Joint Financial Intelligence Unit, which is operated by the Police and Customs and Excise Department.

9.9  Institutions should refrain from carrying out transactions which they know or suspect to be related to money laundering until they have informed the Joint Financial Intelligence Unit which consents to the institution carrying out the transactions. Where it is impossible to refrain or if this is likely to frustrate efforts to pursue the beneficiaries of a suspected money laundering operation, institutions may carry out the transactions and notify the Joint Financial Intelligence Unit on their own initiative and as soon as it is reasonable for them to do so.

9.10  Cases do occur when an institution declines to open an account for an applicant for business, or refuses to deal with a request made by a non-account holder because of serious doubts about the good faith of the individual and concern about potential criminal activity.  Institutions must base their decisions on normal commercial criteria and internal policy.  However, to guard against money laundering, it is important to establish an audit trail for suspicious funds.  Thus, where practicable, institutions are requested to seek and retain copies of relevant identification documents which they may obtain and to report the offer of suspicious funds to the Joint Financial Intelligence Unit.

Annex 5: Examples of Suspicious Transactions

2.  Money Laundering Using Bank Accounts

…

(c)  Any individual or company whose account shows virtually no normal personal banking or business-related activities, but is used to receive or disperse large sums which have no obvious purpose or relationship to the account holder and/or his business (e.g. a substantial increase in turnover on an account).

…

(f)  Matching of payments out with credits paid in by cash on the same or previous day.

…

(p)  High velocity of funds through an account, i.e., low beginning and ending daily balances, which do not reflect the large volume of dollars flowing through an account.

Supplement

3.  Customer due diligence

3.1  This section reinforces paragraphs 5.1 and 5.2 of the Guideline and introduces new requirements.

3.2  The customer due diligence process should comprise the following:

(a)  identify the direct customer, i.e. know who the individual or legal entity is;

(b)  verify the customer’s identity using reliable, independent source documents, data or information [IN 4];

(c)  identify beneficial ownership and control, i.e. determine which individual(s) ultimately own(s) or control(s) the direct customer, and/or the person on whose behalf a transaction is being conducted;

(d)  take reasonable measures to verify the identity of the beneficial owner of the customer and/or the person on whose behalf a transaction is being conducted, corroborating the information provided in relation to (c);

(da)  obtain information on the purpose and reason for opening the account or establishing the relationship, unless it is self-evident; and

(e)  conduct on-going due diligence and scrutiny i.e. perform on-going scrutiny of the transactions and account throughout the course of the business relationship to ensure that the transactions being conducted are consistent with the AI’s knowledge of the customer, its business and risk profile, including, where necessary, identifying the source of funds.

12.  Existing accounts

12.1  This section supersedes paragraph 5.3 of the Guideline.

12.2  An AI should take steps to ensure that the records of existing customers remain up-to-date and relevant.  Where necessary, additional evidence of the identity of existing customers should be obtained to ensure that these comply with the AI’s current standards.

12.3  To achieve this, an AI should undertake periodic reviews of existing records of customers.  An appropriate time to do so is upon certain trigger events.  These include:

(a)  when a significant [IN 39] transaction is to take place;

(b)  when there is a material change in the way the account is operated;

(c)  when the AI’s customer documentation standards change substantially; or

(d)  when the AI is aware that it lacks sufficient information about the customer.

12.4  For the avoidance of doubt, even in the absence of an intervening trigger event, an AI should still conduct a review at least annually [IN 39a] on all high-risk customers to ensure that the customers’ records it maintains are kept up-to-date and relevant.  The frequency of such reviews should be documented in the AI’s policies and procedures.

113.  An “AI” is an authorised institution.  Further, IN 39 states that a ‘significant’ transaction is one which is not necessarily linked to monetary value.  It may include transactions that are unusual or not in line with an AI’s knowledge of the customer.

114.  Ms Kong also referred to the Hong Kong Monetary Authority’s ‘Good Practices on Transaction Monitoring’, which are put forward to deal with the prevention of money laundering and financing of terrorism (AML/CFT).

115.  Ms Kong also referred to sections 25 and 25A of the Organised and Serious Crimes Ordinance (“OSCO”), relating to dealing with and a failure to disclose monies which should have been suspected in whole or in part directly or indirectly to represent the proceeds of an indictable offence.

116.  Though not strictly a regulatory guideline, Ms Kong also relied on the Bank’s own ‘Working Guideline on Prevention of Money Laundering Activities’, and in particular paragraph 13.2 relating to transactions involving savings accounts.  Amongst the matters listed as being “suspicious transaction indicators” are the following:

-  Account only used for temporary repository of fund;

-  “U-turn” transactions: funds from a certain person or a certain company are transferred to another person or another company, then that person or that company also transfers funds back to the original account

-  After the account frequently receives a large amount of inward remittance, immediately withdraws the funds in one go;

-  Individual or company accounts which basically shows no general personal banking or business-related activities, but I used to receive or pay large amounts of money without clear purpose or without obvious relationship to the account holder and/or their business not clearly related with the business (for example a substantial increase in the amount of transactions in the account).

E.     The Law

E.1    Vicarious Liability

117.  Ms Kong submitted that the relevant test for determining vicarious liability in the context of a master and servant relationship is the ‘close connection’ test, as laid down by the Court of Final Appeal in Ming An Insurance Co (HK) Ltd v Ritz-Carlton Ltd (2002) 5 HKCFAR 569.

118.  The doctrine of vicarious liability, by which employers are in certain circumstances held liable for torts committed by their employees, was developed by judges for the purpose of providing the victims of tort with a remedy against persons who have the means to satisfy awards and on whom it would be just to fix liability to do so.  For a long time, the courts applied what was called the Salmond test, making employers liable for torts committed by their employees in the course of their employment.  Further, an employee’s tort is deemed to have been committed in the course of his employment if it is either (a) something authorised by his employer or (b) an unauthorised mode of doing something authorised by his employer.

119.  It was recognised that the ‘unauthorised mode’ limb of the Salmond test can give rise to difficulty.  Therefore, the test was varied in the case of Lister v Helsey Hall Ltd [2002] 1 AC 215 (HL).  The revised test posed the question as to whether the employee’s tort was so closely connected with his employment that it would be fair and just to hold his employer vicariously liable.  As put by Lord Millett (at 245G), what is critical is that attention should be directed to the closeness of the connection between the employee’s duties and his wrongdoing, and not to verbal formulae.  As put by Lord Steyn (at 223H), a master is liable even for acts which he has not authorised, provided they are so connected with acts which he has authorised that they may rightly be regarded as modes – although improper modes – of doing them.

120.  In the Ming An case, Bokhary PJ summarised it in this way (at §19):

By ‘close connection’ is meant a connection between the employee’s unauthorised tortious act and his employment which is so close as to make it fair and just to hold his employer vicariously liable.  I consider close connection to be an intellectually satisfying and practical criterion for vicarious liability.  It imposes vicarious liability when, but only when, it would be fair and just to do so.  And it provides a workable concept, namely a sufficiently close connection, for determining in each case whether doing so would be fair and just.

121.  By way of conclusion, Bokhary PJ stated (at §25):

For all the foregoing reasons, I regard close connection as the basic criterion for vicarious liability in regard to all torts committed by an employee during an unauthorised course of conduct, whether intentional wrongdoing or mere inadvertence is involved.  This is not to say that this criterion is to be treated like a statutory formula.  Its application is always to be undertaken in context.  I dare say that the requisite connection will prove in practice to be more readily found in certain types of case than in others.  But the basic criterion having been applied, the disposal of each case will always turn ultimately on its own facts and the particular considerations which they raise.  This is to say no more than what Lord Eldon LC famously intervened to observe …, namely that doctrines ought to lay down ‘fixed principles’ while ‘taking care that they are to be applied according to the circumstances of each case’.

122.  Litton NPJ said (at §42) (italics in original):

Hence, in seeking an answer to the question ‘Is the servant’s wrongful act so closely connected with his employment that it would be fair and just to hold the employer precariously liable?’  It must be remembered that the issue is not freestanding, and matters such as the servant’s duties at the time when the tort occurred, whether he was acting in the interests of the employer or solely for himself, et cetera, are still relevant.  And, casting one’s eyes a little wider, the court should also have regard to the business activities of the employer broadly speaking and ask if the risk which gave rise to the damage … was created by those activities: If they were, that was a risk which the employer could have insured against.

123.  Mortimer NPJ stated (at §47) that the test is particularly apt in cases where the employee has committed tortious acts which are also serious criminal acts, but it is of general application.

124.  The Lister case was revisited by the UK Supreme Court in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677, by a Court of whom three of its members are now NPJs in Hong Kong.  In describing the present law, Lord Toulson, with whom Lord Neuberger, Baroness Hale and Lord Dyson and Lord Reed agreed, stated (citation references omitted):

44.  In the simplest terms, the court has to consider two matters.  The first question is what functions or “field of activities” have been entrusted by the employer to the employee, or, in everyday language, what was the nature of his job.  As has been emphasised in several cases, this question must be addressed broadly …

45.  Secondly, the court must decide whether there was sufficient connection between the position in which he was employed and his wrongful conduct to make it right for the employer to be held liable under the principle of social justice which goes back to Holt CJ.  To try to measure the closeness of connection, as it were, on a scale of 1 to 10, would be a forlorn exercise and, what is more, it would miss the point.  The cases in which the necessary connection has been found for Holt CJ’s principle to be applied are cases in which the employee used or misused the position entrusted to him in a way which injured the third party.  Lloyd v Grace, Smith & Co, Pettersson v Royal Oak Hotel Ltd and Lister v Helsey Hall Ltd were all cases in which the employee missed used his position in a way which injured the claimant, and that is the reason why it was just that the employer who selected him and put him in that position should be held responsible. …

46.  Contrary to the primary submission advanced on the claimant’s behalf, I am not persuaded that there is anything wrong with the Lister approach as such.  It has been affirmed many times that I do not see that the law would now be improved by a change of vocabulary.  Indeed, the more the argument developed, the less clear it became whether the claimant was advocating a different approach as a matter of substance can and, if so, what the difference of substance was.

125.  The facts of the Mohamud case involved a petrol station owned by the respondent, where a customer was violently attacked by a sales assistant.  The respondent denied being vicariously liable for the attack, because the sales assistant’s actions were not closely related to his duties as an employee.  Lord Toulson noted that the assistant was employed to attend customers, and that though the conduct towards the customer was clearly unauthorised it was within the field of activities assigned to him.  Therefore, given that the assistant’s conduct arose from his position serving customers for his employer, it was just that the respondent be liable for his abuse of that position.  Lord Toulson did not consider it right to regard the assistant as having metaphorically taken off his uniform the moment he stepped from behind the counter.

126.  Therefore, it seems to me that the ‘close connection’ test is now firmly established, and has survived recent challenge. That is not to say that the test is always easy to apply.  Indeed, it has been recognised that the lack of precision in the test is inevitable, given the infinite range of circumstances where the issue arises.  Essentially the court makes an evaluative judgment in each case, having regard to all the circumstances and, importantly, having regard also to the assistance provided by previous court decisions: see Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at §26.

127.  However, the question arises as to whether the ‘close connection’ test is applicable at all in the circumstances of a case such as the present case.

128.  Mr Li said it is not.  He submitted that in a case such as the present case, where the issue is whether a principal is bound by the fraudulent representations of an agent, the test for vicarious liability is simply the test for authority.  He referred to ‘Clerk and Lindsell on Torts’ 23^rd Ed at §6-55, which states:

Fraud of employee  In Armagas Ltd v Mundogas (The Ocean Frost) the House of Lords endorsed a line of authority indicating that vicarious liability for fraud is governed by “a set of principles and a line of authority of peculiar application” so that “it is unnecessary to consider the development of the basis of vicarious liability in relation to tort such as negligence or trespass, which have followed a somewhat different line”.  And this remains the case notwithstanding the considerable development this area of the law has otherwise undergone in recent years.  The principal will still be precariously liable “if, but only if, the deceitful conduct of the agent was within his or her actual or ostensible authority”.  Of its very nature, fraud involves the deception of the victim and by that deception his persuasion to part with his property or do some other act to his own detriment and to the benefit of the person practising the fraud.  For this reason the decision whether an employee committed fraud in the course of his employment can only be made after the authority, actual or ostensible, with which the employee is closed has been ascertained.

129.  Mr Li also referred to ‘Bowstead and Reynolds on Agency’ 22^nd Ed at §8-180, which states:

Torts involving misstatements  Torts of misrepresentation, unlike most torts where the claimant will be a hapless victim, involve reliance by the claimant.  This suggests that the principle should not be liable for the misstatements of an agent who is also an employee unless the third party was justified in relying on them, viz. unless they were made within the agent’s actual or apparent authority, which of course they may be.  This approach, consistent with that employed in Lloyd v Grace, Smith & Co, was adopted by the House of Lords in [The Ocean Frost] as regards the tort of deceit.  On this approach it will not matter whether or not the agent as an employee, liability arises if, but only if, the relevant misstatement was made within the agent’s actual or apparent authority.

130.  As that passage suggests, there may be a need to reconcile the approach relating to close connection and that relating to authority.  There has long been established the possibility of vicarious liability for fraud committed by employees who are not directors of the company.  In Lloyd v Grace, Smith & Co [1912] AC 716 – a case relied on by Ms Kong – a solicitor was held liable for the fraud of his managing clerk who induced a client to transfer property to him and then dishonestly disposed of the property for his own benefit.  The case was decided on the ground that the claimant was invited by the firm of solicitors to deal with their managing clerk who was in fact held out as authorised to transact the claimant’s business on behalf of the firm.  The firm’s liability arose from the fact that throughout the transaction the fraudulent clerk acted as the representative of the firm, and he received the custody of the documents of title with the consent of the client given because he was acting in that capacity.

131.  In such cases, the court is not entitled to expect a fraud victim to make enquiries about the legitimacy of a transaction even if there are reasonable grounds for suspicion.  All that matters is that the defendant’s employee had actual or ostensible authority to act in the way that he did and that the claimant was defrauded: see also Quinn v CC Automotive Group Ltd [2011] 2 All ER (Comm) 584 at §27.

132.  The principle to be derived from Lloyd – and followed in similar cases involving solicitor’s clerks, like Uxbridge Permanent Building Society v Pickard [1939] 2 All ER 344 – is that the employer will be liable if the fraudulent conduct of the employee falls within the scope of the employee’s authority, actual or ostensible. Reference was made to Barwick v English Joint Stock Bank (1867) LR 2 Ex 259 at 266, where Willes J stated:

In all these cases it may be said, as it was said here, that the master had not authorised the act.  It is true he has not authorised the particular act, but he has put the agent in his place to do that class of acts, and he must be answerable for the manner in which that agent has conducted himself in doing the business which it was the act of his master to place him in.

133.  This is what was reaffirmed in Armagas or The Ocean Frost [1986] 1 AC 717, where Lord Keith stated (at 781E) that:

The essential feature for creating liability in the employer is that the party contracting with the fraudulent servant should have altered his position to his detriment in reliance on the belief that the servant’s activities were within his authority, or, to put it another way, part of his job, this belief having been induced by the master’s representations by way of words or conduct.

134.  After pointing out that previous cases provide some guidance, Lord Keith also stated (at 782H-783B):

At the end of the day the question is whether the circumstances under which a servant has made the fraudulent misrepresentation which has caused loss to an innocent party contracting with him are such as to make it just for the employer to bear the loss.  Such circumstances exist where the employer by words or conduct has induced the injured party to believe that the servant was acting in the lawful course of the employer’s business.  They do not exist where such belief, although it is present, has been brought about through misguided reliance on the servant himself, when the servant is not authorised to do what he is purporting to do, when what he’s purporting to do is not within the class of acts that an employee in his position is usually authorised to do, and when the employer has done nothing to represent that he is authorised to do it.

135.  This passage emphasises that an employee cannot confer authority on himself simply by representing that he has it.  The employer must, by words or conduct, have induced the impaired party’s belief that the employee was acting within his authority.  Further, the claimant must show that he in fact relied upon the actual or ostensible authority with which he alleges the employer had clothed his employee.

136.  The Ocean Frost was also referenced by the Court of Appeal in Wong Wai Hung v Hui Wei Lee [2001] 1 HKLRD 736 at 767G-H.  Having referenced the Lloyd line of cases which is authority for the principle that a principal is liable for the fraud of his agent acting within the scope of his authority, it was stated that The Ocean Frost reaffirmed the point that although the underlying relationship may be one of master and servant, the test of liability is authority, actual or ostensible, rather than the course of employment.

137.  In a case such as the present, it is likely that focus will be on ostensible or apparent authority (rather than actual authority).  The principles governing apparent authority are well-established. Apparent authority is found where a principle, by words or conduct, has represented to the third party that the agent has actual authority to enter into the kind of transaction in question, and the third party enters into a transaction in reliance on that representation, which reliance must be reasonable.  Though the requirement has sometimes been put as “honest and rational” reliance, that formula is not without criticism, and in my view in any event adds little to an assessment of reasonableness.

138.  As it was put in Russo-Chinese Bank v Li Yau Sam [1910] AC 174 at 184:

… in order that the principle of “holding out” should in any given case of agency applied, the act done by the agent, and relied upon to bind the principal, must be an act of that particular class of acts which the agent is held out as having a general authority on behalf of his principal to do; and, of course, the party prejudiced must have believed in the existence of that general authority and been thereby misled.

139.  There are two types of apparent authority: (1) where the principal makes an actual representation regarding the agent’s authority, on which the third party relies; and (2) where the principal holds the agent out in a specific position carrying a usual authority: see Bowstead at §8-014.  In the latter case, the usual authority of the agent is the (actual) authority normally found or implied between principal and agent in such a position.

140.  Although an agent who acts fraudulently may still be acting within his authority, the mere fact that the principal, by appointing the agent, gives him an opportunity to defraud a third party, does not without more make the principle viable.  When the agent is acting in furtherance of his personal interest, this may negative actual authority, and if the third party knows or ought to know of it, negative apparent authority: see Bowstead at §8-063.  This was also recognised in, for example, the Russo-Chinese Bank case, where it was stated that it is undoubted that a person who deals with an agent, whose authority he knows to be limited does, so at his peril, in the sense that should the agent be found to have exceeded his authority his principal cannot be made responsible.  This point was also picked up by Lord Keith in The Ocean Frost, at 777A-C.

141.  Ms Kong also relied on a policy argument, of the sort highlighted in the Lloyd case, as guiding the decision to extend the doctrine of vicarious liability to hold an employer liable for the fraud of an employee.  Essentially, loss arising out of the fraud of an employee can be mitigated by taking out insurance policies.  But the relationship between a customer of the bank and the client is entirely safeguarded and predicated on trust.  So, Ms Kong submitted, it would be just and equitable for the court to offer relief to a person such as the plaintiff in this case, as a result of the vulnerable position in which bank customers are placed, but where the employer such as the Bank is able to insure against such fraud.

142.  Insofar as it is necessary to reconcile the ‘close connection’ test and the test of apparent authority, it seems to me that it is the apparent authority of the employee who makes the fraudulent representations that will identify the necessary close connection as might render it just to hold the employer vicariously liable.

E.2    Negligence

143.  The plaintiff’s claim in negligence in this case is based upon what is called the Quincecare duty, following the decision of Steyn J in Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363 at 375h-376h.  The relevant duty is the bank’s duty to refrain from executing a customer’s order when the bank is put on inquiry that the order is an attempt to defraud the customer.

144.  The duty arises in the relationship between a bank and customer which is primarily one of debtor and creditor, but where the drawing and payment of the customer’s cheques as against, or the giving of instructions as regards, the money of the customer’s in the bank’s hands is a relationship of principal and agent, creating fiduciary duties.  It is, therefore, important to remember that the relevant duty applies when the bank is acting on an order or instruction to transfer monies.  In other words, the duty arises in and about executing the customer’s order or instructions – or, as it has been put, the Quincecare duty is a specific manifestation of the duty of care owed by a banker to its customer in relation to instructions.

145.  The Quincecare duty co-exists in contract and tort, and generally nothing will turn on the question whether the case is approached as one in contract or tort.  But the duty is intrinsic to the contractual relationship, and the duty remains ancillary and subordinate to the bank’s ordinary primary duty to comply with the customer’s instructions in relation to the funds in his account.  It must also be remembered that the bank’s obligation in relation to customer instructions is often largely automatic or mechanical.

146.  The potential conflict between duties was canvassed in the Quincecare case as follows (at 376c-h):

Given that the bank owes a legal duty to exercise reasonable care in and about executing a customer’s order to transfer money, it is nevertheless a duty which must generally speaking be subordinate to the bank’s other conflicting contractual duties.  Ex hypothesi one is considering a case where the bank received a valid and proper order on which it is prima facie bound to execute promptly on pain of incurring liability for consequential loss to the customer.  How are these conflicting duties to be reconciled in a case where the customer suffers loss because it is subsequently established that the order to transfer money was an act of misappropriation of money by the director or officer?  If the bank executes the order knowing it to be dishonestly given, shutting its eyes to the obvious fact of the dishonesty, or acting recklessly in failing to make such enquiries as an honest and reasonable man would make, no problem arises: the bank will plainly be liable. But in real life such a stark situation seldom arises.  The critical question is: what lesser state of knowledge on the part of the bank will oblige the bank to make enquiries as to the legitimacy of the order?  In judging where the line is to be drawn there are countervailing policy considerations.  The law should not impose to burdensome an obligation on bankers, which hampers the effective transacting of banking business unnecessarily.  On the other hand, the law should guard against the facilitation of fraud, and exact a reasonable standard of care in order to combat fraud and to protect bank customers and innocent third parties.  To hold that a bank is only liable when it has displayed a lack of probity would be much too restrictive and approach.  On the other hand, to impose liability whenever speculation might suggest dishonesty would impose wholly impractical standards on bankers.  In my judgment the sensible compromise, which strikes a fair balance between competing considerations, is simply to say that a banker must refrain from executing an order if and for as long as the banker is ‘put on inquiry’ in the sense that he has reasonable grounds (although not necessarily proof) for believing that the order is an attempt to misappropriate the funds of the company … the external standard of the likely perception of the ordinary prudent banker is the governing one.

147.  As regards how to approach the problem, Steyn J stated (at 377b-c):

Having stated what appears to me to be the governing principle, it may be useful to consider briefly how one should approach the problem.  Everything will no doubt depend on the particular facts of the case. Factors such as the standing of the corporate customer, the bank’s knowledge of the signatory, the amount involved, the need for a prompt transfer, the presence of unusual features, and the scope and means for making reasonable enquiries may be relevant.  But there is one particular factor which will often be decisive.  That is the consideration that, in the absence of telling instructions to the contrary, a banker will usually approach a suggestion that a director of a corporate customer is trying to defraud the company with an initial reaction of instinctive belief.

148.  This is because it is trust, not distrust, which is the ordinary basis of a bank’s dealings with its customers.  Full weight must be given to this consideration before one might, in a given case, conclude that the bank had reasonable grounds for thinking the order was part of a fraudulent scheme to defraud the company or customer.  I add the words “or customer” because the facts of the Quincecare case (as well as many other cases) concerned the operation of a company’s bank accounts through the authorised signature of a director, but it is possible to think of other situations where a customer’s account is operated through the authorised signature of some other person.

149.  The Quincecare approach has been followed in Hong Kong, for example recently by Anthony Chan J in PT Tugu Pratama Indonesia v Citibank NA [2018] 5 HKLRD 277 at §§49-55.  (That decision has recently gone on appeal but, at the time of this Judgment, no appeal decision has been handed down.)

150.  It is also relevant to keep in mind that when assessing whether a Quincecare duty has been triggered and breached, the Court should be wary of applying hindsight or some meticulous ex post facto examination: see Lipkin Gorman (a firm) v Karpnale [1992] 4 All ER 409 at 441h.  As put by Anthony Chan J in the PT Tugu Pratama case, nor is it the function of the bank to act as a ‘fraud detector’, so the duty is triggered only in clear cases.  In the Lipkin Gorman case in the Court of Appeal, [1989] 1 WLR 1340 at 1356, May LJ suggested it would only be in circumstances such that any reasonable cashier would hesitate to authorise payment without inquiry that a cheque should not be paid immediately on presentation and such inquiry be made.  As it has been put elsewhere – see Akai Holdings Ltd (in liq) v Thanakharn Kasikorn Thai Chamkat (Manachon) [2008] HKCU 810 at §391 – the facts of each case must make it ‘obvious’ that the transaction is probably dubious, and hence that it is ‘imperative’ to seek an explanation prior to proceeding.

151.  That said, it is probably unhelpful to focus on the description of the threshold level, and the assessment will always turn on the particular facts and the question whether the bank has been put on inquiry by those particular facts.

152.  The question arises as to whether the Quincecare duty is capable of arising when the bank’s customer is an individual operating the account on the signature of that same individual.  It may be thought that it can, if the key point is whether the bank is put on inquiry that any particular transaction may be irregular, authorised, or for a private purpose, as opposed to for the customer’s best interests – or, to put it another way, where the bank is put on inquiry in the sense that the bank has reasonable grounds for believing that the order is an attempt to defraud the customer: see, for example, Federal Republic of Nigeria v JP Morgan Chase Bank NA [2019] EWHC 347 (Comm) at §§21 and 28.  (The first instance decision was upheld by the Court of Appeal: see [2019] EWCA Civ 1641).

153.  Ms Kong relied in particular on the first instance decision in the Republic of Nigeria case at §28 which describes the “core” of the Quincecare duty of care as:

… the negative duty on a bank to refrain from making a payment (despite an instruction on behalf of its customer to do so) where it has reasonable grounds for believing that that payment is part of a scheme to defraud the customer.

154.  In effect, Ms Kong must argue – as she did – that the duty arises when the bank has (or ought to have) reasonable grounds for believing that the payment is part of a scheme to defraud the customer in any way and by any person, and so she must add those words to the quote. But, it seems to me (and as the part in parenthesis in the quotation identifies) that the starting point arises where the bank has received an instruction on behalf of its customer, ie. from an authorised agent, rather than directly from its customer.  That at least logically fits with the cases, and with the concept that the duty relates to circumstances when the bank has reasonable grounds for believing – ie. is put on inquiry – that the order or instruction given on behalf of the customer is not one genuinely made for the benefit of, or properly authorised by, the customer.  That makes sense in the context of a corporate customer of the bank, or in the circumstances where an individual customer’s account is operated on the signature of another.

155.  But if the duty is, as Ms Kong suggested, a duty arising whenever a bank has reasonable grounds for believing that the instructed payment is part of any scheme perpetrated by any person to defraud the customer in any way, that seems to me to be something fundamentally different.  It would require the bank to be potentially alert to factual circumstances of a very different nature than, and often if not usually wholly unconnected with, the relationship between the bank and its customer.

156.  Even at first blush, if that were the duty it would be significantly more onerous than has been envisaged in the previously reported cases: see, for example, the Republic of Nigeria case at §30.

157.  Though Ms Kong submitted that she was not asking me to extend the existing scope or concept of the Quincecare duty, my instinctive view was that her submission would actually require a significant extension to the previously described delineation of that duty.  My considered view remains the same.

158.  Hitherto, the Quincecare duty has been held to arise only in circumstances of attempted misappropriation of the customer’s funds by an agent of the customer (rather than by a third party perpetrating a fraud on the customer which induces the payment).  This is very clear from, for example, Singularis Holdings Ltd (in liq) v Daiwa Capital Markets Europe Ltd [2019] UKSC 50, where at §§23 and 35 respectively, Lady Hale stated:

… the purpose of the Quincecare duty is to protect a bank’s customers from the harm caused by people for whom the customer is, one way or another, responsible.

and

The context of this case is the breach of the company’s investment bank and broker of its Quincecare duty of care towards the company. The purpose of that duty is to protect the company against just the sort of misappropriation of funds as took place here.  By definition, this is done by a trusted agent of the company who is authorised to withdraw its money from the account.

159.  In the very recent English case of Philipp v Barclays Bank UK plc [2021] EWHC 10 (Comm), HHJ Russen QC, sitting as a Judge of the High Court, traversed much of the necessary ground. The claimant in that case was the victim of a so-called “APP fraud”, when she made two international payments from her bank account which the fraudster deceived her into making in her belief that the monies would be safe and that she was assisting an investigation by the Financial Conduct Authority and the National Crime Agency.

160.  The acronym “APP” stands for “authorised pushed payment”, and APP fraud is apparently the second-biggest type of fraud, after card fraud, reported by the UK trade association for the UK banking and financial services sector.  Push payments are payments where a customer instructs their bank to transfer money from their account to someone else’s account.  An authorised push payment is one where the customer has given consent for the payment to be made, which can include situations where the customer has been tricked into giving that consent.  This is to be distinguished from an unauthorised payment, which is one made without the customer’s consent, for example a payment made due to bank error or one made using a stolen payment card.

161.  The fact that the case involved an authorised payment is important to the analysis, as it is to the analysis of the present case where the plaintiff plainly authorised – that is, consented to, indeed instructed – the various payments made from her Savings Account to Ms Liu’s 3646 Account, though she says she was tricked as to the basis for making those payments.

162.  At §75 of his judgment in the Philipp case, the Judge identified the issue in that case by reference to the claimant’s pleaded allegations of the bank’s duty, essentially that the bank should have had in place various anti-APP fraud policies and procedures, including: (a) detecting potential APP fraud transactional data and customer behaviour analytics incorporating, where appropriate, the use of fraud data and typologies; (b) measures to identify people who were vulnerable to APP fraud, and where such a risk is identified, taking steps to gather further information in order to assess the risk, and provide their customers with impactful warnings; (c) delaying payment for taking appropriate investigative steps to include, where appropriate, seeking written confirmation as to the rationale for the transaction, including from any third party professionals involved, and invoking protocols which it is inferred are in place with the Police to enable further information to be gained from the Police, and investigating recent account activity; and (d) for the purposes of stopping or reversing or reclaiming monies the subject of a potential APP fraud, delaying payment and communicating and/or writing to the recipient bank seeking assurances from them that monies will be held or frozen pending any review.

163.  At §130, the judge held that it was clear from previous authorities that those averments did amount to an invitation to the court to extend the scope of the Quincecare duty beyond its established boundaries:

They postulate the need to have in place certain anti-APP policies and procedures as if there were banking rules or standards requiring such.  Quincecare establishes that speculation and amateur detective work on the part of a bank have no place in fixing a bank, objectively, with knowledge or belief sufficient to put a payment instruction on hold.  Through the obligations asserted [in the pleading], Mrs Philipp does seek to impose upon the Bank certain professional standards of detective and investigative work, including potential liaison with the police, aimed at establishing whether or not a payment which potentially may have been made in furtherance of an APP fraud really is suspect.

164.  At §108, the judge rehearsed what the claimant’s counsel described as “red flags” in relation to the claimant’s payments to the recipients which were sufficient to put the bank on inquiry.  Those suggested “red flags” included the speed of the transaction relative to the recent substantial crediting of a sum into the account; a comparison of the sums of money involved compared with routine credits and debits; that the recipients were new payees with whom the bank’s records revealed the customer had no connection; and the use by the customer of branches that were not local to her address.

165.  At §§156-175, the judge identified his analysis – with which I agree – which led him to the conclusion that the Quincecare duty should be confined to cases where the suspicion which has been raised (or objectively ought to have been raised) is one of attempted misappropriation of the customer’s funds by an agent of the customer.

166.  In the present case, the plaintiffs pleading asserts (amongst other things) that the Bank, if acting competently with reasonable care and skills: (a) would detect unjustifiable, prolonged, frequent and/or substantial amount of funds transferred from a client’s account to a staff account and/or between the two accounts of a client and a staff; (b) would have reasonable grounds to believe that the transfers might suggest Ms Liu’s misappropriation of customer’s funds or may constitute breach of anti-money laundering regulations; (c) would detect unjustifiable, prolonged, frequent and/or substantial amount of funds transferred from a staff account to a client’s account; (d) would have reasonable grounds to believe that those payments were inconsistent with Ms Liu’s known, legitimate business or personal activities, and might indicate illegitimate financial activities; (e) would have had special internal monitoring of Ms Liu’s bank accounts to ensure financial prudence and personal integrity of staff; (f) should have raised the alarm and/or conducted enquiries with Ms Liu and/or the plaintiff into the nature and/or reason(s) for the deposits; and (g) would have contrasted Ms Liu’s income with the sums transferred so as to have had reasonable grounds for believing that the money, in whole or in part, represented the proceeds of Ms Liu’s commission of an indictable offence.

167.  I think that these assertions also seek to impose upon the Bank in this case certain professional standards of detective and investigative work, aimed at establishing whether or not a payment which potentially may have been made in furtherance of a fraud really is suspect.  Not only is the Bank to be concerned with any particular transfer, it is said the Bank should perform various investigation and analysis by reference to other transfer activity, investigating more than one person’s means, business and personal activities, and also making comparison of the transfers, and the analysed features of or potential patterns of transfer, against those persons’ means, business and personal activities.  At bottom, it requires detection of the underlying purpose of the transfers, or series of transfers.  The suggested extension of the duty to support those averments seems to me to face various fundamental problems.

168.  The starting point is, as I have already mentioned, that the decided cases confirm the Quincecare duty as being subordinate or ancillary (and intrinsic) to the bank’s primary duty to act on the customer’s instruction as to how the monies in his account should be spent.  In the Court of Appeal decision in the Lipkin Gorman case at 1356, May LJ stated that a bank’s duty of care in such circumstances must be limited, and he said it was no part of the bank’s duty to consider the commercial wisdom or otherwise of the particular transaction.

169.  Yet, what is suggested seeks to elevate that duty to a point where too much doubt would be cast over the effectiveness of the customer’s instructions.  That would emasculate the primary duty and involve the supposedly subordinate duty carrying with it a higher level of obligation (essentially one of ‘second-guessing’ the instruction).

170.  Further, there is no clear framework of rules by reference to which the duty, as extended, might sensibly operate.  In some of the previous cases, for example Singularis, language has been used directed at knowing or reckless disregard of commercially accepted standards of conduct and to hold a bank accountable where it falls below them.  In the context of suspected misappropriation of monies by an agent of the customer, the use of that general language it is entirely appropriate to a breach of the Quincecare duty (though it is worth noting, as HHJ Russen QC noted, that is in distinction from any dishonest assistance on the bank’s part – a point highlighted by the failure of the parallel claim for dishonest assistance advanced in Singularis).

171.  The observations of Lady Hale in Singularis about the purpose of the duty (in the context of both causation and corporate attribution) have no resonance where the cause of the customer’s loss is her own desire to make the payments to their intended recipient.  Nothing was said in Singularis about a bank protecting an individual customer (and her monies) from her own intentional decision.  Whereas even a sole shareholder can steal from the company for whom he is a signatory at the bank, an individual such as the plaintiff cannot steal from herself.  To put it another way, where the bank’s customer is an individual (and not a corporation, unincorporated association or other person which is dependent upon other individual representatives and signatories who have the potential to “go rogue”), the individual customer’s authority to make the payment is not only apparent but must also be taken by the bank to be real and genuine.  There is not even a notional distinction between the customer and the person exercising the customer’s authority; they are the one and same individual.  As between that individual and the bank, the payment instruction will be no less real and genuine in relation to the intended destination of the customer’s funds because it has been induced by deceit.

172.  The Quincecare duty is a common law duty which rests upon the general concept of a bank adhering to standards of honest and reasonable conduct in being alive to suspected fraud.  Accordingly, the benchmark is expressed in quite general terms by reference to standards of the ordinary prudent banker, which Steyn J expressly noted was not too high a standard.  It is a duty of care framed by concepts of knowledge (actual or constructive) rather than further negligence in failing to follow the rules of some code.

173.  I think there is force in Mr Li’s submission that if a bank is to be held to the standards of something equivalent to a code for intervention – for present purposes, in the case of suspected fraud being perpetrated by a bank’s employee on the bank’s customer – then the bank needs to know its terms.  Such terms would have industry-wide application, and would require industry-wide consultation and implementation. There would be in a form of industry-recognised rules or banking code from which a bank could identify the particular circumstances in which it should engage in ‘second-guessing’ so that it should not act (or not act immediately) upon its customer’s genuine instructions.  As Mr Li submitted, the existence of the various anti-money laundering rules only highlights the need for a legal duty of the sort now put forward to be set by reference to industry-wide standards which are known and certain.  That is the only way in which it might be held that the Quincecare duty could comprise going beyond the honest and reasonable conduct of the ordinary prudent banker.

174.  HHJ Russen QC thought the “red flags” relied upon by counsel (see above) did not signal any danger that the bank could be acting upon an instruction which the customer might in hindsight say she did not truly intend.  It was not clear why any of the matters relied upon should be regarded as indicative of a fraud.  I agree that if such matters, taken separately or together, were to be regarded as reasons why a bank is obliged to refrain from acting on a payment instruction the result would be a significant inhibition upon its customer’s freedom to spend his monies, including his ability to use any of its branches.  Again, a contrary conclusion would require an industry-recognised set of rules making that clear.

175.  Like HHJ Russen QC, I do not accept that the Quincecare duty can on its own be properly used to impose a higher (or more specific) set of standards which dictate that, in certain defined circumstances, the bank is obliged to question the customer’s instructions.  I also note the caution, suggested in May LJ’s observations, against judges in later cases proceeding as if a set of detailed rules had been laid down when they have not.

176.  I also agree with the analysis that it is the fact that the customer authorises payments, meaning her instructions are valid, that makes legal title pass even between herself and the fraudster.  That is what provides the customer with a claim for damages for deceit (with the advantages the law affords a claimant in those circumstances in terms of its approach to causation and the absence of any contributory negligence defence) or, if the monies could still be traced, the ability to rescind the transaction and re-establish her beneficial interest under a proprietary claim.  Those potential remedies are reflections of that basic point about the effectiveness of the instruction the customer gives to the bank to make the payments.

177.  At §§166-168 in the Philipp case, HHJ Russen QC said, in a passage with which I also agree:

166.  By contrast, in a case where an agent of the bank’s customer misappropriates the customer’s monies then, to the extent that the defaulting fiduciary (or any subsequent transferee from) can claim any legal title to the stolen monies, because the transaction should be treated as voidable rather than wholly void, he will be treated as having received them on constructive trust for the customer from the moment of their receipt.  The distinction between that type of proprietary claim and one which might be advanced upon a payor electing to rescind a transaction induced by deceit is illustrated by their different treatment for limitation purposes.  I mention this distinction because the Quincecare duty has only been recognised in the decided cases in circumstances where the bank’s observance of it would have forestalled any such immediate constructive trusteeship on the part of the defaulting fiduciary.  As I have noted above, a bank being held liable in damages for breach of the duty is not the same as it being held accountable for dishonest assistance (cf. the decision of the trial judge in Singularis) but the circumstances in which the duty arises have parallels with the grounds for such accessory liability.

167.  It therefore seems to me to be a point of some significance to the scope of the Quincecare duty that, where a bank customer makes a payment which is induced by deceit, any later claim to rescind the payment and reclaim beneficial ownership of the monies will not support a related claim against persons other than the representor on the basis of dishonest assistance or knowing receipt in respect of their actions prior to rescission: see, for example, the observations of Millett LJ in Bristol & West Building Society v Mothew [1998] Ch. 1, 22-23.  That, in my view, is a further indication that the circumstances which create a parallel between grounds for such accessory liability and the trigger of liability under the Quincecare duty should not be recognised when the payment was authorised by the customer himself.  The paying bank should not be taken to be under a duty to suspect the genuineness of the payment being made by the customer when others assisting the fraudulent representor are not exposed for their dealings with its proceeds before the customer decides to rescind it.

168.  Mrs Philipp suggests that, as between herself and the Bank, the Bank was under obligations the fulfilment of which would involve it second-guessing a decision about how she wished to spend her own monies when that decision had been presented by her to the Bank as intentional, freely-willed and (in the case of the payment to Lambi) justified by her husband’s previous dealings with the recipient.  In other words, she says that the Bank was under a duty to second guess her decision as to how she wished to spend her money.  In my judgment, the existence of such a duty would involve the triumph of unduly onerous and commercially unrealistic policing obligations over the bank’s basic obligation to act upon its customer’s instructions.  This point goes to both obstacles identified above.

178.  I think the proper conclusion is that there is no proper basis for imposing liability upon a bank in respect of alleged omissions which, viewed from the perspective of the purpose behind the suggested duty to act, really relate to testing the genuineness of the recipient of the monies rather than the genuineness of the instruction to pay the monies (whatever the circumstances behind that instruction may be, and whether or not the paying person might have a compelling claim in deceit against the recipient as a result of them).

179.  Hence, I do not accept the Quincecare duty expands as far as Ms Kong suggested, or should be expanded in that way.  The Quincecare duty is not triggered on the pleaded facts of this case.

180.  Ms Kong also relied on what she says are breaches of regulatory obligations owed by a defendant, as forming the standard of care owed by a defendant in the tort of negligence.  But, I agree with Mr Li that this risks conflating (a) common law negligence and (b) breach of statutory duty, which are two different causes of action in tort.  Rather, I think that one can pay regard to the standards set down by appropriate regulators as helping to inform the common law standard which might be owed (as opposed to specifically setting that standard).

181.  On the other hand, it might be said that the absence of a regulatory framework of sufficient industry-wide acceptance and certainty as regards certain aspect of banking practice helps to inform that the common law standard does not extend beyond that identified through the cases.  I have already touched on this point above.

182.  I also accept that internal guidelines may help to inform the relevant duty and standard of care owed.  Therefore, whilst a failure to live up to a bank’s own internal guidelines is not necessarily fatal to the bank’s averment that it has not been negligent, deviation by the bank from the practice embodied in a guideline that it has laid down for itself might be strong prima facie evidence of negligence: see Zanda Investment Ltd v Bank of America National Trust and Savings Association [1994] 2 HKC 409.

183.  On the pleadings in this case, the question of contributory negligence on the part of the customer might arise.  In the context of a customer’s relationship with a bank, Ms Kong submitted that the threshold necessary to satisfy the court that the standard of care has been breached has been described in Malaysia America Finance Corp (HK) Ltd v Mercantile Bank Ltd [1975] HKLR 279, adopting a passage from Spencer Bower and Turner on ‘Estoppel by Representation’ 2^nd Ed at 54, as follows:

A customer owes no duty to his banker to abstain from appointing any particular manager, secretary, clerk, officer, or servant, to fill in or deal with his cheques and cheque books on his behalf, or to distrust or watch the person so appointed, or to anticipate criminal conduct on his part, or, in the general conduct of his business and affairs, to adopt any particular system, or measures, or course of action, for, however usual proper and wise for his own protection it may be to take such precautions, the bank has no legal right to require them to be taken, or to found an estoppel upon the customer’s neglect to take them.

184.  Mr Li accepted that any entitlement to rely on contributory negligence would not extend to claims of fraudulent misrepresentation and breach of fiduciary duty.

E.3    Contract

185.  It is trite that the account opening mandate between a customer and a bank is a contract capable of being enforced: see, for example, DBS Bank (Hong Kong) Ltd v San Hot (HK) Industrial Co Ltd [2013] 4 HKC 1, at §44.

186.  Whilst I accept, as Ms Kong submitted, that such a contract may have an implied term that the bank will exercise skill and care, that duty will be considered in the contract of the other contractual duties, and the contractual and tortious duties will be co-extensive.

187.  Hence, an implied duty of care in carrying out a customer’s instructions under the account opening documents will be the same as, and no greater than, the Quincecare duty.

E.4    Fiduciary Duty

188.  Similarly, any fiduciary duty owed by bank to its customer is limited in scope, and – in particular, when considering the duty owed when carrying out a customer’s instructions to transfer funds – in practice will not extend beyond the Quincecare duty.  That is simply because the extent and nature of fiduciary duties will fall to be determined by reference to the contract: see Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439 at §§140-141.

E.5    Circuity

189.  Mr Li relied upon the defence of circuity. By reference to certain clauses of the contractual documents, it is said that the Bank is entitled to hold the plaintiff to an indemnity which mirrors the loss she claims, hence the absolute defence of circuity: see Moulin Global Eyecare Holdings Ltd v Lee Sin Mei Olivia [2009] 3 HKLRD 265 at §20.

190.  The relevant question is to ask what the contract provides, meaning that if, as a matter of interpretation of the contract there exists an indemnity which mirrors the claim, then the claim will fail.

F.     Analysis

F.1     Vicarious Liability

191.  In her closing submissions, Ms Kong addressed the question of vicarious liability by reference to the close connection test and the apparent/ostensible authority test separately. However, as I have already indicated, it is the apparent authority test which is applicable to the present type of case, involving a fraudulent misrepresentation.  Further, if Ms Liu did not have apparent authority, it is difficult to see how the close connection test would be satisfied.  I shall, therefore, address the question of vicarious liability without separating the tests, and I shall focus on apparent authority.

192.  In doing so, I remind myself that apparent authority is found where: (1) a principal has represented, by words or conduct, to a third party that the agent has authority to enter into the kind of transactions in question; (2) the third party enters into a transaction in reliance on that representation; and (3) the reliance is reasonable. In other words, the three elements relate to: (1) representation or holding out; (2) actual reliance; and (3) reasonableness of the reliance.

193.  I accept that the plaintiff had not met Ms Liu prior to the occasion when the Savings Account and the Securities Account were opened at the North Point Branch of the Bank in March 2010. On that occasion, and on subsequent occasions when the plaintiff met Ms Liu at the branches of the Bank, Ms Liu was wearing bank staff uniform.  Ms Liu was also apparently responsible for securities services.

194.  Therefore, Ms Kong submitted, the plaintiff’s trust in the investment scheme arose only out of Ms Liu’s apparent official position within the Bank, and the plaintiff consented to Ms Liu receiving her money only because Ms Liu was acting in that capacity.  Ms Kong also pointed to Ms Liu’s job description which included handling client orders and enquiries, promoting security services to customers so as to achieve a branch target and implementing the daily operation of securities dealings activities.  The job description was an internal document, but it described the actual authority given by the Bank to Ms Liu, and described the kind of activities one would expect such an employee to engage in, and be authorised to engage in.

195.  Ms Kong also relied on the fact that the investments were solicited by Ms Liu from the plaintiff by telephone during banking hours, and that the transfer of large sums of money into Ms Liu’s account sometimes took place at branches of the Bank, occasionally in Ms Liu’s presence.  Further, other than on two or three occasions, the plaintiff had collected all the receipts from Ms Liu at the Bank.  Those receipts bore the Bank’s letterhead, the plaintiff’s own account details, and Ms Liu’s staff number and HKMA licence number.  Those receipts gave the plaintiff the impression – and, I have accepted, were intended to give the impression – that the plaintiff was dealing with Ms Liu (who was obviously an employee of the Bank) relating to an investment product offered by the Bank.  (I leave aside for the moment to whom it was supposedly offered by the Bank.)  The requirement for the plaintiff to sign receipts, which signed copies were retained by Ms Liu, would only have cemented that impression.  Further, as Ms Kong sought to emphasise, this was in the context that the plaintiff had never previously engaged in an ELN investment, and had never seen a real ELN receipt.  All her knowledge on this derived from Ms Liu.

196.  Ms Kong also pointed to the contemporaneous records made by the plaintiff, which she jotted down on the receipts, the bank transfer/deposit slips and her bank passbook, as evidence in the plaintiff’s honest belief in the truthfulness of the investment scheme.  As to the distinction between securities trading and ELNs, Ms Kong submitted that dealing in securities and securities-related products are sufficiently proximate to be considered of the same kind or class of activity, which an employee might have ostensible authority to conduct.  Adopting the wording from the Uxbridge case, I think, Ms Kong submitted that where Ms Liu was the security services manager placed at the securities service counter in uniform, and her terminal enabled her to execute orders for any Bank customer, it was within her actual authority to execute the orders of customers and subsequently issue receipts to them.  She had unrestrained access to necessary stationery for that purpose, which is what permitted her to compile the fake receipts.  There was no limitation on the ostensible authority, not least in the absence of proper supervision.  Notably, no witness working in the North Point Branch over the material period was called to give evidence.  So, Ms Kong submitted, there is no evidence now as to how Ms Liu’s ostensible authority had been limited or controlled by the Bank.

197.  But Mr Li countered that it was the plaintiff’s own case, and oft repeated statement, that Ms Liu told her (and she understood) that the relevant investments were “internal”, offered exclusively to the Bank’s staff and in which outsiders could not participate. This was a common theme of the plaintiff’s statements to the police, to the HKMA and through solicitors to the Bank.  During her oral evidence, the plaintiff also agreed with my description that the investments had to be done through Ms Liu because the high return was really only available to staff. Indeed, that is why Ms Liu had to use her name to take up the “quota”.

198.  On that evidence, there is real force in Mr Li’s submission that it must follow that the Bank could not have intended to offer, or have authorised its staff to offer on its behalf, the internal investments to outsiders such as the plaintiff.  Further, the additional point made by the plaintiff only in oral evidence (albeit in line with an opening submission by Ms Kong) that she understood the “internal” investments to be available to bank “staff or friends or family or relatives”, and that it was akin to getting a special discount from a property developer if one knew someone in the senior management at the developer, does not assist the plaintiff where she insists that she and Ms Liu were never friends and that their relationship was ‘strictly business’.

199.  It is also necessary to distinguish between (a) the obvious representation that Ms Liu was a staff member of the Bank, authorised to sell securities products to customers and (b) any representation that Ms Liu had authority to offer internal staff investments to outside customers.  Similarly, I have already said it is necessary to consider separately and to draw a distinction between the two elements of (a) belief as to genuine existence of the investments as such and (b) the person/entity with whom the plaintiff thought she was dealing.  It is illogical to think that the apparent authority of a Bank employee to sell securities products to customers would extend to authority to sell any kind of product which was limited to dealings between employees and the Bank, and expressly understood by an outsider as not being available to outsiders.  That the product might appear genuine and available to staff is one thing, but it cannot logically confer authority on an employee to make it available from the Bank to another person who is not staff (not least when the person knows the product is not available to outsiders).  If one assumes that the plaintiff never doubted the authenticity of the investment scheme, or otherwise would not have invested her money in it, that does not simply mean that she believed she was dealing directly with the Bank.

200.  Further, as I have already indicated, by 2010 the plaintiff was not an economics or investment ingénue.  The suggestion that the purchase of or investment in a genuine Bank product in direct dealings with the Bank would be conducted through the personal account of a Bank employee is contrary to basic common or commercial sense.  Further, particularly as the purported investments continued, they also obviously lacked any commercial sense.  Even from the start, there was no apparent ‘downside’ or risk.  Against the comparison of the Target Price and the market price at the time of the investment, which the plaintiff acknowledges she tracked, the higher of the returns offered was inherently much more likely to be payable.  The target or trigger simply made little, if any, sense.  But even the lower returns offered made no sense.  Nor could the plaintiff really offer any reason why Ms Liu would have offered to her – someone was not even a friend – a share in such a fantastic investment.  The offered returns were truly fantastic, but in the original meaning of that word, being perverse, fanciful, unreal or irrationally imagined.

201.  Further, even if the ‘interest’ payments made originally began timeously, the payment periods were erratic and tardy from an early stage, and became more erratic and more tardy as time moved on.  Some of the payments made to the plaintiff did not match the promised returns, and sometimes payments were inexplicably joined.  It is difficult to imagine anyone of the plaintiff’s intelligence and investment experience ever thinking that this might be the way an institution like the Bank would operate.  It is even more fanciful that the plaintiff would have believed, as she says she did, Ms Liu’s supposed explanation that the delay in and erratic pattern of payments was because the Bank put its customers in a queue for payment of interest or repayment of principal.  The evidence revealed that the plaintiff knew that the documents she had were not sufficient to prove real investments dealing directly with the Bank, and it is also fanciful that the plaintiff would have believed Ms Liu’s supposed explanation that the documentation might only be produced a year or so later.

202.  I have, of course, already accepted that Ms Liu must have produced the Receipts, and gone through the charade of having the plaintiff sign one copy of them for Ms Liu’s retention, to seek to persuade the plaintiff that the investment products were genuinely offered by the Bank.  In that regard, I have taken into account that the forged documents appeared to identify the plaintiff as the relevant account holder – but the account number was not one which showed any investment activity on any statement.  I have also taken into account the plaintiff’s contemporaneous comments when she confronted Ms Liu in March 2014, as shown in the transcript of the discussion at Ms Liu’s home.  In passing, I mention that those comments and the context do not seem to me to point all one way, including that the confrontation took place privately at Ms Liu’s home rather than in Bank premises.

203.  But to say that the product was a Bank product is, to my mind, not necessarily the same as saying that the product was being sold to the plaintiff by the Bank.  In order to succeed in her fraud, Ms Liu probably needed to persuade the plaintiff that the investment product was a genuine product, but did not need to persuade her that it was being genuinely sold to her by the Bank (rather than being allowed to the plaintiff by an otherwise unauthorised private arrangement between her and Ms Liu).  This seems to me to be the answer to Ms Kong’s submission that the plaintiff could not reasonably have believed that Ms Liu had the means to honour the investment arrangements, reinforcing a belief that it was the Bank with whom she was dealing.  Of course, the plaintiff needed to be led to believe that the product was offered by, and backed by, the Bank.  But that does not simply translate to an inference that the plaintiff necessarily believed that she was dealing directly with the Bank, rather than taking advantage of a private arrangement with Ms Liu arising from Ms Liu’s ability to deal directly with the Bank as an employee of the Bank to whom a product was offered (but which product was specifically not available to outsiders, as the plaintiff knew).

204.  There were other features of the Receipts which seem to me to be relevant.  Whilst I pay no particular attention to the fact that the printing was apparently lopsided, more importantly there were multiple other problems.  In some Receipts, there were typographical errors in the Chinese for the phrase “equity linked”, the very name of the supposed investment product.  The error might amount to one missing stroke – ‘釣’ as opposed to ‘鈎’ – which, on its own, might not have leapt to the plaintiff’s attention.  But those errors were coupled with: (a) the absence of any reference as to how the higher and lower returns depended on the target price, including whether achieving the target price meant the higher return or the lower return; (b) the absence of any reference as to when the target price would be measured or assessed, namely over the whole investment period or only on its last day; (c) a lack of clarity as to whether the days to be counted were calendar days of trading days; (d) occasions when the suggested maturity and settlement dates made no sense; and (e) the mismatch, or at least lack of clarity, as to whether there promised rate of return was a per annum rate or a rate over only the relevant period of the investment.  In overall terms, the Receipts simply did not record the terms of the investment which the plaintiff says were explained her by Ms Liu, yet the plaintiff appears to have been unconcerned by that fact (save, she said, for starting later to ask for some more documents).  In reality, the Receipts were effectively useless, as they could not have been deployed by the plaintiff in the event of any subsequent dispute as to the investments, or as to payment of any interest or repayment of principal.  It is difficult to accept that anyone of the plaintiff’s intelligence and investment experience would have accepted the Receipts as genuinely identifying that Ms Liu had authority from the Bank to offer her internal investments intended only for staff.  At best, they might have been used to show a real product obtained by Ms Liu which she was holding for the plaintiff pursuant to their private arrangement.

205.  As to the Online Records, the plaintiff accepted that the title indicated them to be internal documents not meant to be shown to her.  The plaintiff told the police that they were meant to record transfers by Ms Liu into her Securities Account, but she knew that no entries were to be found on the statements of her Securities Account.  Whilst the plaintiff also stated that she was not concerned by the absence of activity shown on her Securities Account statements, because she knew that ELN’s were not securities, it is difficult to reconcile those two comments.  I have also identified earlier that the statements/records of account number used on the documents showed no relevant activity.  The idea put forward in her oral evidence, that the Online Records were meant to reflect payments to some form of internal account, make any reliance upon those documents as genuinely reflecting Ms Liu’s apparent authority even more tenuous.

206.  As the plaintiff admitted, she was simply overjoyed to be offered and apparently given the sort of return identified, and she did not care why, how or what was the logic of the investments.  In effect, she was blinded by her greed, despite harbouring obvious suspicions that these investments were indeed too good to be true.  Perhaps she relied on the fact that Ms Liu was the brother of her trusted “feng shui” master, but misguided reliance on an agent is not sufficient to meet the test of apparent authority.

207.  The other problem, from the plaintiff’s point of view, arising from the Receipts and Online Records is that they were false documents created by Ms Liu.  But it is trite that the agent cannot clothe himself or herself with apparent authority.  If Ms Liu was not otherwise acting with the apparent authority of the Bank, she cannot have created apparent authority by her own forgery of documents.  I do not think the fact that the documents were created by Ms Liu using Bank headed paper, or on a Bank internal form, changes the analysis.  That an employee has, in order to defraud a third party, misused what the employer has provided for the proper use of the employee during his or her employment does not, without more, make the employer liable for that fraud.

208.  I also take into account that the plaintiff never tried to contact any other person at the Bank, notwithstanding a growing sense of suspicion.  Further, when the plaintiff and Mr Cheng ultimately confronted Ms Liu, they chose to do so first in their own car and then at Ms Liu’s home, rather than at the Bank premises.  That they even felt able to do so says much.  These matters are more consistent with arrangements which were understood to be private between the plaintiff and Ms Liu, than an official or true commercial arrangement between the plaintiff and the Bank (albeit a Bank represented by Ms Liu).

209.  I can also deal with what seem to me to be minor points which I have borne in mind.

210.  Mr Li invited me to draw an adverse inference from the fact that the plaintiff did not call Mr Cheng as a witness.  On the plaintiff’s own case, a substantial part of the investment monies came from Mr Cheng (though the plaintiff says the monies were loaned to her, and still need to be repaid).  The plaintiff gave evidence that Mr Cheng had been told about Ms Liu and the investments, and had asked why the investment returns were so fantastic.  Later, when Ms Liu was confronted by the plaintiff, Mr Cheng was also present, and he did quite a lot of the talking.  The same happened when the plaintiff contacted the Bank and Mr Wong.  Further, the first letter from the plaintiff’s solicitors stated that the claim was being put forward on behalf of both the plaintiff and Mr Cheng.

211.  Whilst there is some force in these points, I decline to draw an adverse inference from the absence of Mr Cheng. Ultimately, I think it is too speculative as to what he might have said to draw any such inference.  In any event, on my findings, whose money was actually lost by the plaintiff through her arrangements with Ms Liu may not matter.

212.  Mr Li does not seek an adverse inference to be drawn from the fact that the plaintiff did not, in the end, call Ms Liu to give evidence (though Mr Li suggests the circumstances were suspicious).  In light of the letter written directly to the court by Ms Liu – which stated she had mental health difficulties, and her memory of events was unlikely to be able to provide much assistance – I am not sure the circumstances of her not giving evidence were actually suspicious.  In any event, there is no property in a witness, and it might be thought that it would have been the Bank which would have sought the evidence of Ms Liu for deployment at trial.  It was, after all, the Bank’s case that the plaintiff and Ms Liu were friends, explaining the private arrangement between them and that the plaintiff knew it was a private arrangement.  Of course, had Ms Liu given evidence, she would undoubtedly also have been asked about the contemporaneous internal bank arrangements, and supervision (amongst other things), about which neither Mr Wong nor Ms Yip were able to give any evidence.  Ultimately, what Ms Liu might have said in evidence is also probably too speculative.

213.  I agree with the submission that the various matters which I have traversed overall, in particular collectively, must have indicated to the plaintiff that she was not investing with the Bank, and that Ms Liu was not acting for the Bank.  The plaintiff knew she was seeking to take advantage of an arrangement not really available to her if she dealt with the Bank.  Unfortunately for the plaintiff, she was the one of whom advantage was taken.

214.  Therefore, in conclusion, I find that (1) there was no representation or holding out by the Bank that Ms Liu had authority to offer the alleged internal investments to the plaintiff, and Ms Liu could not clothe herself with apparent authority; (2) there was anyway no actual reliance on any such apparent authority; and (3) the plaintiff’s understanding was in reality antithetical to authority, meaning that any reliance by the plaintiff on any apparent authority would not have been reasonable reliance.

215.  The claim put forward on the basis of vicarious liability must fail.

F.2     Quincecare Duty / Negligence / Fiduciary Duty

216.  As I have held above, no Quincecare duty was triggered on the facts of this case, and so there can be no question of any breach of that duty.

217.  Once that finding has been made, it follows that the Bank did not owe to the plaintiff a more general or wider duty to detect and/or query transfers which were authorised by the plaintiff.  Nor, is there even any pleading by the plaintiff of any assumption of responsibility to detect or query authorised transfers.

218.  I accept Mr Li’s submission that reference to OSCO and the HKMA Guidelines do not assist.  The obligations of a bank under anti-money laundering laws and regulations are matters for the government and for regulators.  Such laws and regulations are for the protection of the public at large, rather than any specific class of persons, or an individual person. They do not give rise to any private law action for breach of statutory duty. Nor do they of themselves create any common law duty.  Nor do regulatory codes somehow insert themselves into a contract between the bank and its customer, or give rise to some alleged tortious duty of care.

219.  The Bank’s internal guidelines do not assist the plaintiff either.  The starting point is that internal guidelines do not establish or define the scope of any duty owed to external parties: see the San Hot case at §245.  Nor do I think it would have been any breach of any such duty, even had it existed.  There are two relevant matters to consider: first, the Bank’s apparent approach to dealing with ‘significant’ transactions; secondly, the assertion that there were ‘patterns’ of transactions which ought to have been picked up by the Bank.

220.  As to the first, whilst I have accepted that no Bank employee contacted the plaintiff to query her instructions to transfer three sums of money in excess of $3 million, any query which had been generated would probably simply have sought to confirm true authorisation (rather than to have investigated the purpose of the authorised transfer).  I acknowledge some force in the point that had a telephone inquiry been made relating to these transfers, it would have been made by a staff member of the North Point Branch (where the plaintiff’s account was opened), and it might have been noted that the transfers were being made to another staff member at that branch, or at least to someone whose name was the same as another staff member at that branch.  There is also some attraction in Ms Kong’s submission that the reasonable grounds for inquiry and the reasonable inquiries a bank can be expected to make are inextricably linked.  But, if the primary purpose of any inquiry would have been to confirm that the plaintiff intended (that is, truly authorised) the transfers she had instructed, that confirmation would have been given, so I reject Ms Kong’s further submission that had the Bank asked the plaintiff one question about the transfers, the scam would have been unveiled.  Further, it might be thought that any connection made to Ms Liu would more likely have given rise to enquiries made of Ms Liu as to why she was receiving funds.  Anyway, even against those facts, insofar as there was any failure to have made any inquiry of the plaintiff and/or Ms Liu when either of them transferred a sum in excess of $3 million, I have stated it would be too speculative to seek now to divine what might have occurred.  In any event, all the transfers of that magnitude happened relatively late in the material chronology, and any impact of wider enquiries (even if due and/or made) would have given rise to complicated questions touching at least on causation and quantum.  None of those matters were pleaded and none of them were explored in the evidence.

221.  As to the second aspect of alleged patterns of transfer reflecting possible money-laundering, I do not think the table set out above (as relied on by Ms Kong) provide quite as clear patterns she would prefer.  It is right that there are transfers, in particular between Ms Liu and Mr Liu, which might indicate a desire to break down larger sums into smaller transferred sums; but that requires analysis of a whole raft of transactions with the benefit of hindsight.  There is force in Mr Li’s submission that what may now appear to reflect patterns is only because transfers have been extracted from the overall record, grouped together, and compiled into a table.  I do not think those matters would or should necessarily have given rise to concerns looking at the individual transfers in real-time, in particular the transfers from the plaintiff to Ms Liu.  I accept Mr Wong’s evidence when he denied the alleged patterns were typical of money-laundering – not least where the transfers were not in cash and where the majority involved a division of a sum into smaller amounts, rather than the aggregation of small amounts into a larger sum – or that they ought to have been picked up at the time.  I also agree that there is a clear difference between (a) money-laundering and (b) the making of authorised payments induced by a fraud.

222.  I have also taken into account the plaintiff’s evidence that a number of the transfers took place physically at Bank branches, on occasions when Ms Liu was herself present.  But, as I have noted above, it seems that the transfers did not happen at the North Point Branch, where Ms Liu was ordinarily stationed.  There is a sense that the transfers took place not at that branch, either simply because other branches were more convenient to the plaintiff at the time, or because it was preferable to Ms Liu’s conduct of the fraud that less activity involved in the fraud took place at the branch where she was ordinarily stationed.

223.  Even had the Quincecare duty been triggered, I do not think the Bank was put on inquiry so as to have been in any breach of that duty by failing to make the relevant inquiry.

224.  In this context, I have considered the potential policy arguments.  I can see that it might be argued that some form of duty should be imposed on a bank to protect its customers from becoming victims of fraud, precisely because such customers might be greedy and gullible.  But I do not think any such policy factor actually creates what would otherwise be a significant extension on the hitherto recognised limited duty to interfere in the primary duty of complying with a customer’s undisputed authorised instructions for the transfer of the customer’s own funds.

225.  Whilst, at least on one view of the facts, the plaintiff was really a victim of her own greed and gullibility, I do not think that was caused by any negligence or breach of duty on the part of the Bank. Though ultimately the contest in this case is as to who should bear the consequences of the fraud, and it might be said in the broadest terms that the Bank is more likely to be able to afford those consequences (or even to have insured against them), that is not of itself a reason to create the rather difficult wider duty put forward in this case.

F.3     Contract

226.  In closing submission, Ms Kong relied mainly on General Conditions 3.7 and 4.5 in particular.

227.  But, Condition 3.7 simply reposed in the Bank the power to decline to act on instructions if, in the opinion of the Bank, it was practicable reasonable to do so.  That condition does not impose any positive duty not to act on instructions, generally or in any other particular circumstances.

228.  Condition 4.5 deals with situations of “unauthorised transactions (a) arising from forgery or fraud of the third party in relation to which we have failed to exercise reasonable care, (b) arising from forgery, fraud, default or negligence of our employees or agents”.  First, the reference to the exercise of care identifies that the duty will be co-extensive with whatever is the proper limit of the duty of care owed in the particular circumstances.  Reference to Condition 18.1 of the 2012 Conditions, which also refers to the Bank using reasonable care in carrying out customers’ instructions on its behalf, takes the matter no further.  It simply leads back to Quincecare.

229.  Secondly, Condition 4.5 applies to “unauthorised transactions”, when the transfers made by the plaintiff to Ms Liu were authorised.  Hence, the Condition is factually irrelevant. Ms Kong argued that the plaintiff’s authorisation to transfer the funds to Ms Liu’s 3646 Account was for the sole purpose of engaging in the investment.  As she put it, Ms Liu was never authorised to dispose of the funds for her personal use, so that “authorisation” should not be construed to include fraud induced by authorisation.  But, I agree with Mr Li that it is unnatural to describe a fraud as unauthorised, as that mixes up concepts. What the Condition 4.5 identifies, and bites on, is transactions between the bank and the customer, rather than some underlying transaction between the customer and, say, a fraudster.

F.4     Other Matters

230.  In opening submissions, Ms Kong touched on a number of other suggested duties and/or failures, including a duty to advise, a failure to ensure fitness and properness of staff and/or to supervise staff, failure to control stationery, failure to audit or to keep an audit trail and so forth.  I do not think any of them, even if pursued, significantly add to the analysis or change the result of the analysis.

231.  Further, in light of my findings above, I do not think it necessary to deal with the allegations of contributory negligence or circuity.

232.  It is also unnecessary to resolve the small remaining dispute as to quantum, but if I had been required to do so I would have adopted the quantum figure put forward by the plaintiff.

G.     Result

233.  In conclusion, and notwithstanding the question posed at paragraph 7 of the Introduction to this Judgment, the plaintiff’s claim falls to be dismissed.

234.  It may be, particularly in an era of increasing sophistication in and the use of artificial intelligence, that an argument can be made out that banks are (or could place themselves) in a position to monitor the operation of bank accounts held by their employees at their banks, better to assist protection of customers from fraud conducted by employees.

235.  But, that would involve potentially significant invasions of privacy and other matters which would require careful consideration and, as I have already indicated, industry-wide consultation and implementation.  Further, even if that were to happen, it might be thought that determined fraudsters would simply operate their fraudulent activities through bank accounts held at banks which did not employ them.  It would be better for customers to raise questions when there are suspicions of the sort which must have been triggered in this case.  As I said at the beginning, if it seems too good to be true, it probably is.

236.  As to costs, at present I see no reason why costs should not follow the event.  However, I have heard no argument or submissions on costs.  Therefore, I shall make a costs order nisi that the plaintiff shall pay the Bank’s costs of the action (including any reserved costs), with certificate for two Counsel, to be taxed if not agreed.  The nisi order will become absolute if neither party applies for variation of it within 14 days.

237.  Any variation application should be made on papers, and any response should be made within 14 days.  Unless any further directions are then given, the application will then be dealt with on the papers.